'JNIVEh  f^ORNlA 

LOS   ANGt 


XXIV  —  1 


MODERN    BUSINESS 


A  SERIES  OF  TEXTS 

PREPARED    AS    PART    OF    THE 

MODERN  BUSINESS  COURSE  AND  SERVICE 

OF  THE 

Alexander  Hamilton  Institute 


Modern   Business 


Uolumes 


1.  Business  and  the  Man 

2.  Economics  —  The    Science    of 

Business 

3.  Business  Organization 

4.  Plant  Management 

5.  Marketing  AND  Merchandising 

6.  Salesmanship  and  Sales 

Management 

7.  Advertising  Principles 

8.  Office  Administration 

9.  Accounting  Principles 

10.  Credit  and  Collections 

11.  Business  Correspondence 

12.  Cost  Finding 

13.  Advertising  Campaigns 


Corporation  Finance 

Transportation 

Foreign  Trade  and  Shipping 

Banking 

International  Exchange 

Insurance 

The  Stock  and  Produce 

Exchanges 
Accounting  Practice  and 

AuDITIlfc 

Financial  and  Business 

Statements 
Investments 
Business  and  the 

Government 


editor-in-chief 

JOSEPH  FRENCH  JOHNSON 


managing  editor 
ROLAND  P.  FALKNER 


ASSOCIATE    EDITORS 

T.  CouLSTON  Bolton,  Ralph  D.  Fleming,  Leo  Greendlinger 
Charles  W.  Hurd,  Theodore  H.  Rand-McNally 


WRITERS    AND    CONSULTANTS 

{_  See  list  on  page  v  of  Volume  I  3 


BUSINESS 
AND  THE  GOVERNMENT 


WKITTEN    FOR   THE   ALEXANDER   HAMILTON    INSTITUTE 
BY 

JEREMIAH  W.  JENKS 

IN   COLLABORATION    WITH 

JOHN  HAYS  HAMMOND 


MODERN  BUSINESS 
VOLUME  24 


ALEXANDER  HAMILTON  INSTITUTE 
NEW  YORK 


COPYRIGHT    .    1917    .    I918    .    1919    .    1921 
BY      ALEXANDER      HAMILTON      INSTITUTE 

COPYRIGHT  IN  GREAT  BRITAIN  1917  .  1918  .  1919  .  1921 
BY      ALEXANDER      HAMILTON      INSTITUTE 

The  title  and  contents  of  this  volume  as  ivelt  as  the 
business  groiuing  out  of  it,  are  further  protected  by 
laivs  relating  to  trade  marks  and  unfair  trade.  All 
rights  reserved,  including  translation  into  Scandinavian. 

REGISTERED   TRADE    MARK   •    REG.    U.S.   PAT.   OFF. 

MARCA   REGISTRADA   •    M.  DE  F. 

MADE  IN   U  •  S  •  A 


hf 


PREFACE 

The  traditional  relation  of  business  and  the  govern- 
ment in  the  United  States  finds  its  best  expression  in 
the  aphorism  that  the  best  government  is  that  which 
governs  least.  Yet  even  in  the  period  preceding  the 
Great  War  there  had  been  a  very  general  if  some- 
what reluctant  admission,  that  in  certain  matters  the 
welfare  of  the  people  as  a  whole  required  a  certain 
regulation,  even  restriction,  of  the  activities  of  the 
individual. 

With  the  coming  of  war  came  a  reawakening  to  the 
worth  of  our  country  and  a  recognition  of  the  prime 
necessity  of  governmental  dominance  in  times  of 
crisis.  Men  yielded  cheerfully,  even  gladly,  not  only 
to  burdensome  taxes,  but  to  daily  interference  by 
government  officials  in  the  personal  affairs  of  family 
Hfe. 

With  the  return  of  peace  there  has  been  an  almost 
complete  reversal  of  public  opinion.  The  statement 
that  at  the  present  time  "we  need  more  business  in 
government  and  less  government  in  business"  has  been 
widely  applauded.  This  marked  drift  of  public  opin- 
ion encounters  certain  obstacles  in  the  legacies  handed 
down  to  us  from  the  war  period.  Readjustment  is 
not  yet  complete,  and  how  far  the  pendulum  will 
swing  backward  is  not  yet  determined. 


vi  PREFACE 

In  the  present  volume  the  author  has  sought  to  show 
the  underlying  principles  which  govern  the  relations 
of  government  and  business.  In  times  of  peace  as 
well  as  those  of  w^ar  they  are  more  intimately  related 
than  men  often  realize.  Business  men  have  fre- 
quently regarded  government  as  an  interloper  in 
business  affairs,  and  hostility  rather  than  cooperation 
for  the  public  good  has  been  a  common  result.  Since 
however  government  cannot  exist  without  business, 
nor  business  without  government,  only  good  can  re- 
sult from  any  effort  to  reach  a  common  understanding. 

The  Institute  is  indebted  for  the  present  volume  to 
Dr.  Jeremiah  W.  Jenks,  Research  Professor  of  Gov- 
ernment at  the  New  York  University  and  Chairman 
of  the  Board  of  Directors  of  the  Alexander  Hamilton 
Institute.  ]\Ir.  John  Hays  Hammond,  the  distin- 
guished engineer  and  man  of  affairs.  Member  of  the 
Advisory  Council  of  the  Institute,  has  taken  a  deep 
interest  in  this  work,  and  thru  frequent  consultation 
and  discussion  of  the  topics  with  Dr.  Jenks  has  added 
elements  of  value  which  are  gratefully  acknowledged. 

The  Editors. 


TABLE  OF  CONTENTS 


CHAPTER  I 

BUSINESS  AND  THE  PUBLIC  IX  PARTXERSHIP 

SECTION'  PAGE 

1.  The  New  Phase  of  an  Old  Condition  ....  1 

2.  Business  Is  the  Foundation  upon  Which  CiviHza- 

tion  Is  Built 2 

3.  Business  Men   as  ^Members  of  Organized  GoA^ern- 

ment .        3 

(^4.     Business  Men  Are  Guided  by,  and  Themselves  May 

Guide,  the  State 4? 

5.  The  Government ;  the  Committee  or  Agent  of  the 

State ^ 5 

6.  Influence   of   the   Personality   of   Government   Of- 

ficials      6 

7.  Conditions   Under   Which   the   Government   Must 

Act T 

8.  Legislatures 10 

9.  The  Executive  and  the  Judiciary 11 

10.  Nature  of  Public  Opinion .13 

11.  Influence  of  Public  Opinion  on  Business  Questions  1-i 
1^.  The  Business  ^Nlan's  Influence  on  Public  Opinion  .  15 
13.  Social  and  Ethical  Questions 16 

CHAPTER  II 

TAXATIOX  AXD  BUSINESS 

1.  The  Funds  of  Government 19 

2.  Share  in  Distribution 20 

3.  Nature  of  Taxation 22 

vii 


viii  BUSINESS  AND  THE  GOVERNMENT 

SECTION  PAGE 

4.  Canons  of  Taxation 23 

5.  Incidence  of  Taxes,  or  Who  Pays  Taxes?      .       .  24* 

6.  Forms  of  Taxes 26 

7.  General  Property  Tax 27 

8.  Modified  Forms  \ 27 

9.  Federal  Income  Tax 28 

10.  Other  Income  Taxes 29 

11.  Corporation  Taxes 30 

12.  Excess  Profits 31 

13.  Other  Countries 32 

14.  Inheritance  Tax 32 

15.  Justice  and  Taxation 33 

16.  Single  Tax 34 

17.  Indirect  Taxation 36 

18.  Internal  Revenue  Taxes       .......  36 

19.  Ideal  System  of  Taxation .  37 

20.  Export  Duties 37 

21.  State  Taxation 38 

22.  Public  Finance 38 

23.  Importance  of  Public  Expenditures      ....  39 

24.  War  Expenditures,  Loans  and  Taxation  .      .       .41 

CHAPTER  III 

GOVERNMENT,  NATURAL  RESOURCES  AND  THE 
FARMER 

1.  American  Land  Policies 43 

2.  Mineral  Lands 43 

3.  Forests 44 

4.  Conservation  of  Natural  Resources     »      ...  44 

5.  Reclamation  Ser\-ice 45 

6.  Federal  Government  Grants  Land  to  States    .       .  45 

7.  Public  Parks 45 

8.  Plans  for  Conservation 46 


CONTENTS  ix 

SECTION                                                                                                                                                                  -  PAGE 

9.     Importance  of  Agriculture 47 

10.  Fields  of  Government  Activities 47 

11.  Department  of  Agriculture 48 

12.  Agricultural  Colleges 49 

13.  Hatch  Act  Experiment  Stations 50 

14.  Farm  Management 51 

15.  Institute  Work :  Smith-Lever  Bill 52 

16.  Extension  Teaching 52 

IT.      County  Agents 53 

18.  Marketing  Problem ...  54 

19.  Federal  Farm-Loan  Act 55 

20.  Improvement  in  Rural  Conditions 59 

CHAPTER  IV 

GOVERNMENT  ENCOURAGEMENT  OF  INDUSTRIES 
AND  COMMERCE 

1.  Government  Methods  of  Encouragement   ...  61 

2.  Tariff  and  Politics 61 

3.  Tariff  Systems 62 

4.  ^Nlerchantilists  and  the  Theory  of  Protection  .       .  63 

5.  Alexander  Hamilton's  Views 64 

6.  Conflicting  Economic  Interests 65 

7.  Classification  of  Products 67 

8.  Infant  Industries 69 

9.  Who  Bears  the  Burden  of  the  Tariff?        ...  70 

10.  How  Far  Should  a  Country  Be  Self-Sufficient?      .  71 

11.  Education  and  Diversification 72 

12.  Diversion  of  Capital  into  Less  Profitable  Industries  73 

13.  Effect  of  the  Tariff  on  Wages 73 

14.  Home  Market 75 

15.  Do  Protective  Duties  Cause  Slackening  of  Indus- 

trial Progress? 76 

16.  Foreign  Trade  a  Small  Part  of  Total  Trade  .      .  76 


X  BUSINESS  AND  THE  GOVERNMENT 

SECTION  PAGE 

17.  Tariffs  Exert  Small  Influence  on  Industry     .       .  77 

18.  Chief  Objection  to  Tariff 77 

19.  Machinery  in  Tariffs 78 

20.  Goods  Under  Bond 78 

21.  Kinds  of  Duties 79 

22.  Bounties 80 

23.  History  of  the  Tariff 81 

21'.     Effect  "^of  the  War 81 

25.  Dumping 81 

26.  Economic  Independence  of  Nations       ....  82 

27.  A  Tariff  Commission 83 

CHAPTER  V 
PUBLIC  INSPECTION  OF  BUSINESS 

1.  Controversy  Regarding  Government  Inspection    .  85 

2.  Need  of  Standards  in  Business 85 

3.  Weights  and  Measures 86 

4.  Salt,  Lumber,  Grain  and  Sugar 88 

5.  Inspection    of   Meats    as   a    Commercial    and    Sani- 

tary Measure 91 

6.  Inspection  for  the  Export  Trade 92 

7.  Pure  Food  Laws 93 

8.  Banks  and  Insurance  Companies 96 

9.  Protection  of  the  Public  by  Examination  and  Cer- 

tification of  Certain  Professions       ....  96 

10.  Certification  of  Other  Servants  of  the  Public  .       .  98 

11.  Quasi-Oflicial   Privileges 98 

12.  Limitations  of  Inspection 100 

CHAPTER  \1 

PROBLEMS  OF  EMPLOYMENT 

1.  The  Labor  Contract 103 

2.  Constitutional  Limitations 104 


CONTENTS  xi 

SECTION  PAGE 

3.  American  Labor  Policy       . 105 

4.  Results  of  Regulation 106 

5.  New  Needs  of  Modern  Industr}- 106 

6.  Extent  of  Losses 107 

7.  The  Responsibility  for  These  Conditions    .       .       .    109 

8.  The  Part  of  the  Government 109 

9.  Extent  of  Requirements Ill 

10.  Regulation  Rather  than  Proliibition    ....    Ill 

11.  Women  and  Children 112 

12.  Minimum  Wage 115 

13.  Laws  in  the  United  States 115 

14.  Decisive  Experience  Still  Lacking 116 

15.  Extent  of  Low  Wages 116 

16.  Caution  in  Adopting  the  Minimum  Wage  .       .       .117 

17.  Present  Regulations  Beneficial  as  a  Whole      .       .117 

18.  New  Risks  in  Modern  Industry 117 

19.  Laborer  and  Insurance 118 

20.  Social  Insurance o       .119 

21.  Life  Insurance 119 

22.  Workmen's  Compensation 120 

23.  Employers'  Liability 121 

24.  Scope  of  Compensation  Laws 122 

25.  Limited  Benefits 122 

26.  Assurance  of  Benefits      .  123 

27.  Simple  Administration 123 

28.  Results  of  Workmen's  Compensation   ....    123 

29.  Health  Insurance 124 

30.  Field  and  Scope  of  Health  Insurance  ....    124 

31.  Benefits  Lender  Health  Insurance 125 

32.  Sources  of  Funds 125 

33.  Administration  and  Its  Peculiar  Difficulties      .       .    125 

34.  Results  of  Health  Insurance 126 

35.  Insurance  Against  Invalidity  and  Old  Age      .       .    127 

36.  Compulsory  Old  Age  Insurance 128 


xii  BUSINESS  AND  THE  GOVERNMENT 

SECTION  PACK 

37.  Old  Age  Pensions 128 

38.  Insurance  Against  Unemployment 129 

39.  Compulsory  Insurance  Against  Unemployment     .  129 

40.  General  Results  and  Prospects  of  Social  Insurance  130 

41.  Federal  War  Compensation  Laws 133 

42.  Soldiers'  and  Sailors'  Insurance 134 


CHAPTER  YII 

PROBLEMS  OF  EMPLOYMENT  (Continued) 

1.  Labor  Organizations 137 

2.  Labor  Unions;  Syndicalism   (I.  W.  W.)  :  Social- 

ism; Bolsbevism 137 

3.  Syndicalism  (I.  W.  W.) 139 

4.  Socialism 140 

5.  The  Relations  to  Government 143 

6.  The  Boycott,  Picketing 145 

7.  Injunctions  in  the  Control  of  Unions  ....  146 

8.  Financial  Liability  of  Members  of  Unions      .       .146 

9.  Public  Inspections 147 

10.  Industrial  Commissions 149 

11.  Results 149 

12.  Immigration 150 

13.  Americanization 154 


CHAPTER  VHI 

PUBLIC  SERVICE  CORPORATIONS 

1.  Public  Service  Corporations  Need  Special  Recog- 

nition  156 

2.  Why  Different  from  Other  Industries 157 

3.  Meaning  of  Natural  Monopyoly      .      ."      .      .       .158 


CONTENTS  xiii 

SECTION  ^  _  ^  PAGE 

4.  No  Reasonable  Competition  Between  Railroads  in 

Same  Territory 159 

5.  Public  Service  Corporations  Tend  Inevitably  To- 

ward Monopoly 159 

Characteristics  of  Public  Service  Enterprises  .      .  161 

Substitution  Impossible 161 

Competition  Impossible 162 

Assisted  by  the  Government  in  a  Peculiar  Way   .  162 

Bad  Practices  in  the  Past 163 

Public  Service  Character  not  Recognized  .       .       .  163 

Systematic  Regulation  a  Recent  Matter   .       .       .  164 

Powers  of  Regulating  Commissions       ....  165 

Commissioners,  How  Chosen 165 

Commissioners  Must  Possess  High  Qualifications  .  166 

Status  of  Regulating  Bodies 166 

State  Versus  Local  Regulation 166 

Advantages  of  State  Regulation 167 

Optional  Home  Rule 168 

Achievements  of  Regulating  Bodies      ....  169 

Powers  of  Commissions 169 

Net  Income  and  Distribution 170 

Valuation   of  Properties 171 

Points  in  Dispute 172 

Regulation  of  Security  Issues 173 

Regulation   of  Public   Utilities   Still   in  Develop- 
mental Stage 173 

CHAPTER  IX 
LOCAL  PUBLIC  UTILITIES 

1.  Multiplicity  of  Municipal  Activities    ....    175 

2.  Municipal  Ownership  in  the  United  States :  Water- 

works    176 

3.  Electric  Light  Plants 176 


xiv  BUSINESS  AND  THE  GOVERNMENT 

SECTION  PAGE 

•i.  Gas  Works 177 

5.  Street  Railways 178 

6.  Municipal  Ownership  in  Europe 178 

7.  The  Issue:  Regulation  or  Ownership   ....  178 

8.  Why  Municipal  Ownership  Is  Undertaken      .       .  179 

9.  Moral  Aspect  of  Municipal  Ownership      .       .       .  180 

10.  New  Point  of  View 180 

11.  Favorable  Interest  Rates  Secured 181 

12.  No  Dividends  on  Watered  Stock 181 

13.  Expense  of  Regulation 182 

14.  Better  Labor  Conditions  Under  Municipal  Owner- 

ship       182 

15.  Great  Betterment  in  Social  and  Political  Condi- 

tions Claimed 183 

16.  European  Conditions  Different  from  Those  in  the 

United  States 184 

17.  Municipal  Ownership  in  France 185 

18.  Policy  of  Favoring  Workmen  by  Reduced  Rates  .    189 

19.  Poor  Systems  of  Municipal  Accounting    .       .       .    190 

20.  Modern  Development  Effects  Advantages  of  Mu- 

nicipal Ownership 192 

21.  Development  of  Holding  Companies      .       .       .       .194 

22.  Municipal  Government  Still  Inefficient      .       .       .    194 

23.  Municipal    Ownership    Advisable    Where    Health, 

Sanitation  and  Public  Safet}'^  Demand  It      .       .    195 

24.  Where  Profit  Is  the  Predominant  Motive,  Private 

Management  Is  Better 195 

25.  Issue  Must  Be  Settled  by  Experience  .       .       .       .196 

CHAPTER  X 
TRUSTS  AND  COMBINATIONS 

1.  No  Clear-Cut  Government  Policy  Recognized  .       .197 

2.  Definition  of  Trusts  and  Combinations      .       .       .    198 


CONTENTS  XV 

SECTION  "  PAGK 

3.     Why  Government  Interferes 198 

Policies  Followed  by  Germany 200 

Policy  Followed  by  England 201 

Canadian  Policy 201 

Methods  of  Regulation  Under  the  Canadian  Act  .  202 
Considerations  in  the  Canadian  Policy  .  .  .  203 
Beginnings  of  American  Anti-Trust  Movement      .    203 

Sherman  Anti-Trust  Act 205 

"Monopoly"  in  the  Sherman  Act 205 

Reasonable  and  Unreasonable  Restraint  of  Trade  205 
Standard  Oil  and  Tobacco  Decisions  ....  206 
United  States  Steel  Corporation  Decision  of  1915  20T 
International    Harvester    Company    Decision    of 

1914 208 

Sound  Business  Principles  Recognized  ....    209 
Affirmative  Decision  by  U.  S.  Supreme  Court  Rec- 
ognizes Honest  Business  Methods       .  .       .    210 

The  Real  Question  Involved 210 

Public  Interest  as  Shown  by  Facts  .       .211 

Attempts  to  Clarify  the  Sherman  Anti-Trust  Law  212 
Powers  of  the  Federal  Trade  Commission  .       .       .    212 
Readjustment  of  Business  and  Prescribing  of  Ap- 
propriate Decree  in  Equity  Courts  ....    213 

Power  of  Investigation 21^ 

Power  to  Require  Reports  and  Classify  Corpora- 
tions      214 

Power  to  Prevent  Unfair  Competition  .  .  .  214 
Advantages    and    Disadvantages    of    These    New 

Laws 215 

Increasing  Power  of  Federal  Government  .  .  .216 
Distinction  Between  Commerce  and  Manufacturing  21T 
Federal  Incorporation  or  License  for  Interstate 

Commerce 21T 

Present  Situation 218 

XXIV— 2 


xvi         BUSINESS  AND  THE  GOVERNMENT 

CHAPTER  XI 
THE  POSTAL  SERVICE 

SECTION  PAGE 

1.  Importance  of  the  Postal  Service 220 

2.  Development  of  Postal  Service 221 

3.  Activities  of  Post  Office  Constantly  Expanding    .  223 

4.  Particular  Reasons  for  Government  Management 

of  the  Post  Office 223 

5.  Possibility  of  Governmental  Revenue  ....  224 

6.  Social  Aspects  Prominent  in  the  Post  Office    .       .  225 

7.  Should  Be  Run  Efficiently  and  Economically  .       .  225 

8.  Financially  a  Failure 226 

9.  Proper  Accounting  Methods  Lacking  ....  227 

10.  Other  Factors  Causing  Inefficiency      ....    228 

11.  Reasons  for  the  Parcel  Post 230 

12.  Parcel  Post  Introduces  a  New  Principle    .       .       .    230 

13.  Post  Office  Has  Never  Determined  Costs   .       .       .231 

14.  Government  Urged  to  Take  Over  Telegraphs  and 

Telephones 232 

15.  Unprogressiveness  of  Government  Plants  .       .       .    234 

16.  What  Guiding  Principles  Should  Be  Followed?      .    235 

17.  Government    Should    Act    on    Basis    of    Accurate 

Knowledge 236 

18.  Special  War  Services 236 

CHAPTER  XII 
SHOULD  PUBLIC  MANAGEMENT  BE  EXTENDED? 

1.  Government  Management  not  a  Panacea  .       .       .    238 

2.  Advantages  at  Times  Greater  than  Disadvantages  238 

3.  Importance  of  Health 239 

4.  The  War  and  the  Extension  of  Public  Management  239 

5.  Extension    of    Government    Management    in    the 

United  States 240 


CONTENTS  xvii 

SECTION  PAGE 

6.  What  Will  the  After-Effects  Be? 241 

7.  Extension  of  Post  Office  Work 242 

8.  Dishonest  Financial  Methods  Must  Stop  .       .       .  243 

9.  Government  Management  of  Railways  in  Canada 

a  Failure 244 

10.  Government-Managed  Railroads  in  France  not  a 

Success 246 

11.  Conditions  Under  Which  Government  Management 

May  Be  a  Success 247 

12.  Many  Erroneous  Statements  Made  as  to  Costs      .  249 

13.  Fallacies  in  Government  Figures 249 

14.  Why  Private  Management  Is  More  Efficient  .       .  252 

15.  Private  Business  Dynamic 253 

16.  Government    Management    Seldom    a    Source    of 

Revenue 253 

17.  Dangers  of  a  Large  Civil  Service 255 

18.  Could  Dominate  Country  Thru  Vote    ....  257 

19.  Questions  to  Be  Asked 257 

20.  The  Public  Must  Be  Sure  of  Facts      .       .       .       .258 

21.  A  Remedy  to  Be  Sparingly  Applied     ....  259 

22.  Fundamental  Principle  Is  Public  Welfare  ...  260 

CHAPTER  XIII 

THE  GREAT  WAR:  ITS  EFFECTS,  ITS  INFLUENCE, 
ITS  LESSONS 

1.  War  Cuts  Deep  into  Economic  Life     ....  262 

2.  War  Preparations 262 

3.  Economic  Control  Born  of  War  Conditions      .       .  264 

4.  The  United  States  Becomes  a  Creditor  Nation      .  266 

5.  American    Purchase   of   Foreign    Enterprises   De- 

sirable           268 

6.  Inflated  Prices  and  Credits 269 

7.  Profiteering 272 


xviii       BUSINESS  AND  THE  GOVERNMENT 

SECTION  PAGE 

8.  Labor 273 

9.  Industrial  Changes 276 

10.  Railways 277 

11.  Food  and  Fuel 279 

12.  Securing  Popular  Cooperation 281 

13.  Growth  of  Real  Democracy 284 

14.  Art  and  Literature 285 

15.  Growth  of  National  Feeling 286 


BUSINESS  AND  THE 
GOVERNMENT 

CHAPTER  I 

BUSINESS  AND  THE  PUBLIC  IN  PARTNERSHIP 

1.  The  new  phase  of  an  old  condition. — Five  thou- 
sand years  ago  the  emperor  of  China  was  beheading 
the  sellers  of  distilled  liquors  while  wine  sellers  flour- 
ished unmolested.  Even  at  that  far  distant  date  gov- 
ernment was  exercising  control  over  business. 

Within  the  bounds  of  the  history  of  business  as  it 
exists  today  in  its  complicated  and  interlocking  rela- 
tionships, government  influence  has  always  been  a 
paramount  consideration.  Altho  recognized  in  the 
past,  such  influence  has  attained  its  present  strength 
only  within  the  last  few  years.  The  Great  War  and 
the  period  of  readjustment  that  has  followed  it  have 
brought  to  most  of  us  a  new  idea  of  government  and 
the  part  it  has  to  play  in  our  business  life.  The 
mighty  grasp  that  it  took,  from  saying  who  should 
fight  and  who  should  work — from  compelling  a  per- 
mit for  the  importation  of  a  banana  or  the  sale  of  an 
ounce  of  butter  to  the  limitation  of  profits  by  fair 
price  commissions  and  excess  profits  taxes,  has  led 


2  BUSINESS  AND  THE  GOVERNMENT 

us  to  question  and  halt  between  two  opinions,  at  every 
business  move.  We  cheerfully  revolutionized  our  at- 
titude toward  govermental  activities  in  the  face  of  the 
dire  dangers  that  threatened  our  civilization.  It  is 
time  that  we  attempt  to  picture  to  ourselves  the 
moral  relations  of  business  and  the  government  under 
the  new  normality  that  is  springing  from  the  marriage 
of  our  new  ideas  with  our  former  conceptions. 

Now  as  heretofore,  of  course,  business  is  a  type  of 
social  activity,  a  dealing  of  man  with  man.  In  this 
volume  the  viewpoint  is  that  of  the  business  man  look- 
ing upon  himself  as  a  citizen  in  the  state  and  upon  the 
state  as  a  prominent,  in  many  respects,  even  in  times 
of  peace,  a  dominant  factor  in  determining  his  activi- 
ties as  citizen  and  as  business  man. 

2.  Bimness  is  the  foundation  upon  which  civiU- 
zation  is  built. — Architecture,  music,  literature,  mor- 
als, even  religion,  all  have  in  greater  or  lesser  degree 
a  business  basis  essential  to  their  development.  Wit- 
ness the  need  of  organization  and  money -getting  skill 
in  secretaries  and  executive  heads  of  all  types  of  phil- 
anthropic and  other  kinds  of  social  organizations. 
James  Russell  Lowell,  in  characterizing  the  value  of 
a  state  as  "the  amount  it  has  contributed  to  the  knowl- 
edge, the  moral  energy,  the  intellectual  happiness  and 
the  spiritual  hope  and  consolation  of  mankind,"  never- 
theless spoke  of  material  success  as  good,  as  the  neces- 
sary preliminary  to  these  better  things.  The  whole 
business  game,  too,  is  a  form  of  social  action  and  re- 
action, an  intertwining  of  forces,  of  wills  and  of  con- 


THE  PUBLIC  PARTNERSHIP  3 

ditions  out  of  which  grows,  thru  the  likeness  of  men 
and  the  community  of  their  interests,  an  orderly  busi- 
ness society  and  normal  social  development.  It  is 
the  basis  of  civilization. 

3.  Business  men  as  members  of  organized  govern- 
ment.— Owing  to  the  normal  differences  of  nefeds, 
opinions  and  judgments  of  the  different  individuals 
in  a  community,  men  have  necessarily  organized  them- 
selves for  the  purpose  of  regulating  their  social  activi- 
ties for  the  good  of  the  whole.  The  State  is  all  of 
us  organized  for  the  purpose  of  ruling.  "Scientific 
Anarchists"  who  are  disposed  to  rebel  against  the 
checks  put  upon  individual  activities  by  the  force  of 
government  believe  that  merely  a  voluntary  organi- 
zation for  specific  purposes  is  sufficient  to  satisfy 
social  needs.  They  believe  that  the  ideal  state  needs 
no  other  than  voluntary  groups  like  Sunday  schools, 
engineering  societies  or  private  business  firms  to  pro- 
mote business,  recreation  and  all  other  types  of  social 
activities.  But  recognizing,  as  we  must,  the  hamper- 
ing influence  which  actual  governments  exert  at  times 
upon  the  legitimate  and  even  noble  aspirations  of  the 
good,  we  must  likewise  recognize  the  presence  of  the 
evil  doers  among  us.  We  must  note  also  that  even 
the  very  good  have  differing  views  and  that  the  best 
men  are  at  times  driven  by  their  consciences  into  un- 
jnelding  stubbornness,  so  that  if  society  is  to  be  or- 
derly, and  if  the  community  as  a  whole  is  to  move 
toward  practical  accomplishment,  force  must  needs 
at  times  be  employed.     There  must  then  be  this  or- 


4  BUSINESS  AND  THE  GOVERNMENT 

ganization  for  purposes  of  ruling;  and  the  business 
man  is  constantly  coming  into  contact  with  the  organ- 
ized community  either  in  town,  or  state,  or  nation. 

4.  Business  men  are  guided  by,  and  themselves  may 
guide,  the  state. — The  organized  community  in  times 
of  peace  affects  the  business  man  in  various  ways. 
Sometimes  it  assists  him  directly,  as  when,  thru  the 
establishment  of  lighthouses,  the  Government  enables 
him  to  guide  his  ships  safely  thru  tortuous  channels 
or  makes  known  to  him  the  existence  of  hidden  reefs. 

Sometimes  the  state  regulates  his  ways  of  doing 
business,  as  when  the  Federal  Government  controls 
the  acts  of  our  railways  or  when  the  Public  Service 
Commissions  of  our  different  states  decide  upon  the 
accommodations  that  must  be  furnished  by  street  rail- 
way companies  to  their  patrons. 

Sometimes  the  state  itself  appears  as  the  owner  and 
manager  of  certain  classes  of  business,  as  when  the 
United  States  Post  Office  Department  manages  an 
important  phase  of  the  transportation  business,  or 
when  certain  cities  manufacture  and  sell  to  the  inhabit- 
ants gas  or  electricity,  or  provide  their  citizens  with 
their  water  supply.  In  all  these  and  in  many  other 
ways  all  of  us  in  our  organized  capacity  as  ruling 
power  are  assisting,  controlling,  directing  or  man- 
aging each  of  us  in  our  unorganized  capacity  as 
individuals.  In  the  instances  cited  the  state  is  di- 
rectly affecting  the  business  man  in  his  business  life. 
Likewise  thru  the  police  departments  or  health  de- 
partment, it  controls  his  personal  acts  in  other  ways 


THE  PUBLIC  PARTNERSHIP  5 

and  in  case  of  need  thru  the  military  power — neces- 
sarily placed  in  the  hands  of  the  state — it  takes  away, 
temporarily,  his  personal  liberty,  compelling  him  to 
sacrifice  his  business  for  the  sake  of  the  community  or 
even  to  yield  up  his  life  for  the  conmion  good. 

The  business  man,  however,  is  not  merely  passive 
and  acted  upon  by  his  fellow  citizens.  He  is  himself 
under  all  forms  of  government,  especially  in  a  repub- 
lic, an  active  member  of  the  state,  and  as  such  he  helps 
to  direct  its  work.  Just  criticism  has  been  leveled 
at  business  men  on  account  of  the  little  attention  that 
they  have  often  heretofore  paid  to  their  privileges 
and  their  duties  as  citizens.  The  experiences  of  the 
war,  when  rightly  heeded,  have  put  into  our  citizens 
a  new  public  spirit  that  will  impel  more  of  our  most 
competent  citizens  to  put  their  business  gifts  at  the 
disposal  of  the  government  and  to  insist  that  the  gov- 
ernment do  its  work  in  more  business-like  ways. 

5.  The  government,  the  committee  or  agent  of  the 
state. — Whenever  any  group  of  individuals  desires 
to  take  common  action,  it  is  usual  for  it  to  select  a  few 
to  do  its  active  work.  Eveiy  business  corporation, 
every  church,  every  literary  or  scientific  association, 
every  social  club,  is  organized  with  its  board  of  direc- 
tors, its  officers,  its  chief  executive,  to  put  into  effect 
the  determinations  of  its  members.  Likewise  the 
state — society  as  a  whole  organized  for  the  purpose 
of  ruling — has  its  grand  committee  to  formulate  and 
put  into  effect  its  will.  That  committee  we  call  the 
government.     The  si)ecial  subcommittee  that  formu- 


6  BUSINESS  AND  THE  GOVERNMENT 

lates  its  rules  of  action  is  the  legislature — to  a  slight 
extent,  the  judiciary — while  the  executive  puts  these 
regulations  into  effect.  Our  Government  is  thus  a 
definite  group  of  men  who  have  a  task  to  perform  for 
us  and  who  can  be  held  strictly  responsible  to  us. 

There  is  no  way  for  the  state  effectively  to  express 
its  will  save  thru  the  government.  The  individual 
members  of  the  state  by  public  addresses,  newspapers 
and  books  may  speak  their  individual  wills,  but  in 
their  organized  capacity  they  can  act  only  thru  their 
government.  When  Great  Britain  makes  a  loan,  a 
small  committee  of  its  executives  with  the  approval, 
given,  usually  in  most  general  teiTns,  by  its  parlia- 
ment, makes  the  bargains  and  issues  the  bonds. 
When  the  President  of  the  United  States  in  his  offi- 
cial capacity  deals  with  the  Emperor  of  Japan  act- 
ing officially,  the  act  is  that  of  all  of  us,  citizens  of 
the  United  States,  treating  with  all  of  the  citizens  of 
Japan,  tho  thousands  or  even  millions  of  individuals 
in  both  countries  may  be  protesting  not  only  most  bit- 
terly in  their  hearts  but  vociferously  with  their 
tongues. 

The  government  in  action  is  no  lofty  abstraction. 
It  is  a  few  human  beings,  usually  men  of  capacity. 
But  if  it  be  one  dominating  will  like  Napoleon  or  the 
mad  Nero,  its  acts  are  still  the  acts  of  the  state  and 
all  the  citizens  must  share  the  responsibility. 

6.  Influence  of  the  personality  of  government  offi- 
cials.— Too  often  individual  citizens  have  spoken  of 
the  government  as  if  it  were  some  far  off,  superior. 


THE  PUBLIC  PARTNERSHIP  7 

abstract  being  which  does  not  come  into  direct  contact 
with  ordinary  individuals.  The  war  has  brought  the 
government  into  closer  touch  with  most  of  us.  We 
see  that  it  is  made  up  of  men  with  whom  we  deal 
personally  and  it  makes  a  great  difference  in  the  acts 
for  which  we  are  all  responsible  whether  a  Buchanan 
or  a  Lincoln,  a  Jackson  or  a  Polk,  a  Roosevelt  or  a 
Wilson,  a  Jefferson  or  a  John  Adams  occupies  the 
Presidential  chair.  Possibly  of  even  greater  signifi- 
cance in  times  of  peace  than  the  personality  of  the 
president  is  the  local  town  official.  Is  he  a  progress- 
ive, liberal-minded  man  or  a  stingj^  ignoramus?  It 
is  the  will  of  such  a  one  that  determines  the  qualifica- 
tions and  the  salary  of  the  country  school  teacher 
and  that  is  of  prime  importance  to  the  ordinary  citi- 
zen. In  the  one  case  the  character  and  development 
of  his  children  ma}'  be  at  stake;  in  the  other  it  may 
be  only  an  unnoticeable  change  in  the  form  or  amount 
of  his  taxes.  In  any  event,  whatever  the  grade  of 
the  official,  he  stands  for  us;  and  we  as  business  men 
may  determine  whether  or  not  he  represents  our  wills 
and  our  wishes  and  whether  he  is  a  man  of  the  type 
to  represent  us.  The  business  man  needs  therefore 
to  consider  his  relations  with  his  government  as  a  prac- 
tical human  study. 

7.  Conditions  under  which  the  government  must 
act. — Few  people  who  have  not  taken  an  active  part 
in  government  or  who  have  not  been  thrown  into 
practical  contact  with  government  officials,  have  a 
clear  conception  of  the  conditions  under  which  these 


8  BUSINESS  AND  THE  GOVERNMENT 

officials  must  do  their  work.  This  ignorance  often 
leads  to  most  mijust  criticism.  To  meet  the  condi- 
tions suggested  by  such  criticism  at  times  would  re- 
quire supermen,  not  human  beings. 

Every  business  man  knows  the  value  of  time.  The 
head  of  any  large  corporation  must  count  his  minutes. 
The  time  of  interviews  with  subordinates  must  be 
carefully  allotted  in  proportion  to  the  importance  of 
the  decisions  to  be  reached ;  the  time  for  seeing  visitors 
must  be  restricted.  But  consider  the  circumstances 
of  the  President  of  the  United  States  even  in  times 
of  peace.  Most  presidents  have  felt  that  it  was  de- 
sirable to  see  practically  every  visitor  who  wished  to 
call,  altho  in  many  cases  the  only  business  was  to 
satisfy  personal  curiosity.  jMembers  of  the  cabinet 
or  persons  not  belonging  to  the  government  whose 
views  are  required  or  those  who  have  most  important 
dealings  with  the  government  must  be  given  sufficient 
time — possibly  several  interviews.  Arrangements 
must  be  made  for  such  individuals,  or  for  representa- 
tive delegations  dealing  with  important  matters,  to 
have  time  for  discussion.  Hundreds,  even  thousands, 
may  come  in  one  day.  The  president's  secretaries, 
learning  in  advance  the  people  and  their  business  must 
allot  this  precious  time — a  thoro  interview  for  some, 
a  few  minutes'  conversation  with  another,  time  for  a 
one  or  two-minute  decision  with  a  third,  and  for  a 
throng  who  have  called  "merely  to  pay  their  respects," 
an  opportunity  to  walk  past  in  line  and  in  a  whirling 


THE  PUBLIC  PARTNERSHIP  9 

second  to  shake  the  president's  hand  and  look  into 
his  face. 

Reahzing  how  enormous  is  the  burden  of  responsi- 
bihty  when  a  wrong  decision  may  involve  the  country 
in  war,  or  the  approval  of  a  wrong  internal  policy  may 
change  the  entire  structure  of  the  government  for 
good  or  ill,  the  business  man  may  see  how  imperative 
it  is  that  the  president's  work  be  well  organized  and 
that  he  surround  himself  with  counsellors  of  the  most 
practical,  wisest  type,  both  in  his  cabinet  and  in  his 
personal  secretaries  and  aids,  for  they  must  in  prac- 
tice make  many  decisions  for  which  he  must  bear  the 
responsibility. 

Again,  when  one  notes  the  great  mass  of  corres- 
pondence that  must  be  handled  by  the  president's 
office,  or  that  of  any  of  the  heads  of  departments, 
it  is  seen  that  these  higher  officials  like  the  heads  of 
great  business  corporations  can  give  attention  only 
to  the  matters  of  highest  import.  The  largest  part 
of  the  work  must  be  left  to  subordinates ;  and  even  on 
matters  requiring  action  by  the  highest  officials,  the 
burden  of  detail  in  gathering  information  and  fram- 
ing replies,  even  when  great  events  are  at  stake,  often 
falls  upon  subordinates. 

Most  citizens  do  not  realize  these  conditions.  The 
business  man  should  realize  them  and  in  consequence 
should  see  to  it  that  there  is  no  begrudging  higher 
officials  every  assistance  needed  in  order  to  lighten 
their  tasks;  nor,  on  the  other  hand,  should  he  spare 


10  BUSINESS  AND  THE  GOVERNMENT 

any  effort  to  see  that  only  those  with  executive  quah- 
fications  and  sound  judgment  on  business  as  well  as 
on  political  affairs,  occupy  the  higher  positions.  A 
clear  conception  of  government  both  in  spirit  and 
working  method,  if  thoroly  instilled  into  the  minds 
of  the  business  men  of  the  country,  would  sound  tlie 
knell  of  the  demagog's  hopes  and  end  his  pernicious 
activities. 

8.  Legislatures. — The  business  community  finds 
itself  under  restrictions  built  around  it  by  laws.  In 
consequence  the  methods  of  lawmaking  as  well  as 
the  character  of  the  lawmakers  should  receive  atten- 
tion. Doubtless  Ihe  character  of  our  legislators  and 
our  legislative  methods  have  greatly  improved,  but 
these  are  matters  of  the  gravest  significance  and  our 
lawmakers  are  rarely  experts.  We  would  not  think 
of  intrusting  a  banking  business  to  one  not  trained  as 
a  banker,  or  the  erection  of  a  great  building  to  one 
not  trained  as  an  architect;  but  the  making  of  tax 
laws — a  process  touching  the  fortunes  and  the  welfare 
of  millions,  a  process  more  complicated  in  its  possi- 
bilities for  good  or  for  evil  to  a  community  than  the 
erection  of  manj^  buildings  or  the  failure  of  dozens 
of  banks — we  do  in  part  intrust  to  men  utterly  un- 
trained in  the  principles  of  taxation.  Of  course,  the 
leading  men  on  the  important  committees  of  Congress 
have  acquired  some  training  by  experience,  but  this 
differs  materially  from  scientific  training. 

Thru  methods  of  formal  procedure  largety  judicial 


THE  PUBLIC  PARTNERSHIP  11 

in  nature  the  British  Parliament  has  succeeded  in 
largely  uprooting  corruption  in  legislation. 

With  us,  investigations  that  have  appealed  to  the 
people's  sense  of  honor  and  to  public  sentiment 
thereby  aroused  have  accomplished  much  the  same  end 
as  regards  corruption.  But  these  means  still  leave 
very  much  to  be  desired  from  the  viewpoint  of  thoro, 
scientific  investigation  and  decision. 

The  whole  matter  of  legislation  in  business  affairs 
is  felt  by  many  business  men  to  be  an  uncertain, 
costly  procedure  from  which  they  can  expect  little 
in  the  way  of  benefit  or  of  certain  security  against 
harm. 

There  are  many  improvements  that  can  be  made  in 
legislative  methods.  The  most  noteworthy  improve- 
ment now  under  consideration  is  that  of  a  national 
budget  system  to  coordinate  revenues  and  expendi- 
tures. 

9.  The  executive  and  the  judiciary. — The  work  of 
the  executive  whether  president,  governor  or  mayor, 
has  usually  affected  the  business  man  in  a  much  less  di- 
rect way,  except  in  so  far  as  these  executives  determine 
legislation.  Beyond  that,  their  influence  upon  busi- 
ness has  been  largely  seen  in  making  appointments, 
in  accepting  information  which  might  determine  the 
interpretations  of  legislative  action,  the  method  of 
the  enforcement  of  the  laws,  or  even  in  the  granting 
of  privileges,  the  awarding  of  contracts,  the  doing 
of  business  in  connection  with  routine  work. 


12  BUSINESS  AND  THE  GOVERNMENT 

Perhaps  the  chief  criticism  of  the  higher  executives 
has  come  from  the  fact  that  they  have  failed  to  give 
protection  to  business  interests,  especially  those 
abroad,  or  to  make  appointments  of  officials  who 
would  conduct  the  government's  work,  where  it 
affected  business,  by  methods  that  were  reasonably 
economical  and  efficient.  In  most  of  these  lines, 
especially  in  connection  with  municipal  govermnent, 
there  has  been  great  improvement  of  late  years,  tho 
much  remains  to  be  desired.  The  chief  remedy  for 
these  evils  is  to  divorce  politics  from  business  and  see 
to  it  that  appointments  are  made  thru  merit  rather 
than  as  a  party  reward.  And,  of  course,  the  business 
men  can  see  to  it  that  the  executives  get  sound  in- 
formation on  business  questions  whenever  they  so  de- 
sire. The  evils  of  inefficiency  were  in  many  depart- 
ments greatly  increased  during  the  Great  War,  tho 
probably  the  cause  was  primarily  the  enormous  and 
sudden  increase  of  work  and  the  consequent  use  of 
inexperienced  officials  rather  than  either  corruption  or 
partisan  influence. 

In  the  interpretation  of  the  law  by  the  judges,  it 
would,  of  course,  be  improper  for  the  business  man 
to  attempt  to  influence  the  opinion  of  the  judges  ex- 
cept by  seeing  to  it  that  suitable  and  accurate  informa- 
tion is  furnished,  whenever  opportunity  offers,  either 
in  the  presentation  of  cases  before  the  court  or  thru 
the  public  press.  Judges  wish  to  form  their  opinions 
accurately  upon  evidence  and  to  base  their  decisions 
upon  law ;  but  aside  from  the  technical  evidence  there 


THE  PUBLIC  PARTNERSHIP  13 

is  always  a  mass  of  information  accessible  to  the  pub- 
lic, and  to  the  judges  as  part  of  the  public.  This 
more  or  less  unconsciously  shapes  the  opinions  of 
every  man — and  fortunately  even  judges  are  human. 

10.  Nature  of  public  opinion. — The  opinion  of  the 
public  usually  determines  the  acts  of  legislators  and 
of  executives,  if  that  opinion  is  decided  and  clearly 
expressed.  We  are  all  of  us  largely  influenced,  either 
consciously  or  unconsciously,  by  those  with  whom  we 
come  in  contact.  Very  many  of  the  discussions  re- 
garding public  opinion  overlook  the  fact  that  the  en- 
vironment of  most  individuals  is  distinctly  limited. 
Each  man  numbers  among  his  friends  and  acquaint- 
ances only  a  few;  and  his  opinions,  his  judgment,  his 
course  in  life  are  determined  chiefly  by  the  judgment 
of  those  few.  Here  and  there  the  opinion  of  a  team- 
ster may  be  affected  by  the  word  of  a  distinguished 
lawyer,  but  only  rarely  and  indirectly.  The  opin- 
ion of  the  teamster  is  likely  to  be  that  of  other  team- 
sters, those  who  come  under  similar  influences  and 
have  similar  associations.  Likewise,  the  judgment 
of  the  housemaid  as  regards  clothing,  social  proprie- 
ties, the  natm'e  of  the  service,  is.  the  public  opinion 
of  the  housemaid's  society,  not  that  of  the  mistress. 
And  when  it  comes  to  industrial  action  determined 
by  legislators,  the  opinions  of  each  member  of  the 
great  voting  groups  is  likely  to  be  swayed  in  the  same 
way  as  that  of  his  fellows  in  his  own  social  and  busi- 
ness class. 

Political  leaders  are  not  mistaken  in  their  methods 

XXIV— 3 


14  BUSINESS  AND  THE  GOVERNMENT 

of  dealing  with  different  classes  of  individuals.  They 
work  upon  trade  unions  thru  trade  union  officials, 
upon  members  of  certain  nationalities,  Italian,  Pol- 
ish, Bohemian,  thru  influential  individuals  of  those 
nationalities,  especially  thru  those  who  come  into  per- 
sonal contact  as  members  of  the  class  that  it  is  desired 
to  reach.  Public  opinion  is  not  one  opinion;  it  is  a 
kind  of  composite  picture  of  various  types  of  opinion 
built  up  from  the  conversations  and  influences  of  mem- 
bers of  each  one  of  the  separate  social  groups. 

11.  Influence  of  public  opinion  on  business  ques- 
tions.— How  influential  this  public  opinion  is  may 
often  be  seen  in  connection  with  matters  affecting  the 
business  welfare  of  the  community.  If  prices  are 
rising  and  the  cost  of  living  is  rapidly  increasing,  most 
classes  in  the  community  are  affected  and  there  is 
likely  to  rise  in  a  short  time  a  demand  for  investigat- 
ing commissions,  for  direct  action  on  the  part  of 
mayors  and  governors,  for  legislative  acts  to  be  passed 
by  state  legislatures  or  by  Congress.  In  most  cases 
such  demands  are  made,  as  can  readily  be  seen  by 
noting  the  nature  of  the  bills  introduced,  without  any 
fundamental  knowledge  of  business  principles. 
What  seems  at  first  hand  to  be  a  cause  of  the  high 
prices  such  as  high  freight  rates  or  profits  of  middle- 
men, are  taken  up,  attacked,  discussed  and  possibly 
legislative  action  is  taken,  even  tho  there  has  been 
no  wrong  or  unbusinesslike  action  on  the  part  of  any 
of  the  parties  mentioned,  and  altho  the  legislative 
action  can  have  no  good  effect.     The  action  has  been 


THE  PUBLIC  PARTNERSHIP  15 

a  reflection  of  the  unenlightened  opinion  of  un- 
trained groups.  It  should  be  always  remembered 
that  ignorance  plus  ignorance  does  not  equal  wisdom. 

On  the  other  hand  this  same  public  opinion 
strengthened  by  a  feeling  of  justice  on  the  part  of 
employers  of  labor  often  leads  to  increases  in  wages, 
properly  earned  and  greatly  needed.  At  times,  how- 
ever, the  pressure  of  this  public  opinion  acting  thru 
legislatures,  possibly  even  upon  courts,  brings  broad- 
est injustice.  Still  again,  such  opinion  often  has  a 
decided  influence  upon  the  outcome  of  strikes  or  other 
disputes  between  great  classes  in  the  community,  the 
general  sentiment  in  the  main  being  probably  right, 
altho,  frequently,  in  minor  matters,  mistaken. 

12.  The  business  man's  influence  on  public  opinion. 
Probably  nine-tenths  of  the  questions  that  affect 
our  social  life  most  intimately  have  their  origin  in 
business.  All  matters  of  wages,  of  prices,  of  freight 
rates — everything  that  has  to  do  with  our  material 
life  touches  business.  The  business  man,  therefore, 
if  he  is  broad-minded,  intelligent,  conscientious,  is 
really  the  authority  that  should  be  consulted.  He  is 
the  man  who  should  make  an  effort  to  give  to  the 
public  the  information  which  he  himself  possesses,  and 
to  give  it  in  such  a  way  that  it  may  have  due  influ- 
ence in  shaping  public  questions.  For  example,  the 
action  of  many  of  the  railroads  in  printing  at  their 
own  expense  in  the  public  press  definite  statements 
of  fact  and  positive  conclusions  regarding  matters 
pending  before  legislatures,  is  only  to  be  commended, 


16  BUSINESS  AND  THE  GOVERNMENT 

as  long  as  they  give  the  facts  accurately  and  fully. 
An  active  part  in  public  matters  by  business  men  will 
prove  to  be  of  the  greatest  value  to  business  itself  and 
from  that  viewpoint  alone  it  is  justified. 

On  the  other  hand,  govermnent  officials  are  usually 
desirous  of  securing  accurate  information,  of  making 
right  judgments  on  public  matters.  They,  there- 
fore, welcome  any  information  given  either  directly  or 
thru  the  press,  so  long  as  that  information  is  accurate 
and  fair. 

We  should  realize  that  by  far  the  largest  part  of 
the  time  of  most  men  is  devoted  to  business,  i.  e.,  to 
getting  a  living  and  supporting  those  dependent  upon 
them.  While  we  should  always  keep  in  the  fore- 
ground the  development  of  our  higher  interests,  in- 
tellectual, moral,  religious,  we  should  never  lose  sight 
of  the  fact  that  by  the  great  majority  of  the  people 
chief  attention  must  be  given  to  earning  a  living  and 
conducting  business  affairs.  Under  the  stress  of  war 
we  saw  thousands  of  able  business  men  from  pa- 
triotic motives  gladly  sacrifice  their  personal  inter- 
ests to  serve  loyally  the  government  in  its  time  of 
need.  But  even  in  time  of  peace  it  seems  clear  that 
one  of  the  chief  duties,  if  not  the  chief  duty  of  the 
business  man,  aside  from  conducting  fairly  his  own 
daily  work,  is  to  keep  himself  informed  on  all  ques- 
tions that  vitally  affect  the  public  interest  thru  poli- 
tics, and  to  exert  his  influence  in  politics  by  all  fair 
means. 

13.  Social  and  ethical  questions. — A  very  consid- 


THE  PUBLIC  PARTNERSHIP  17 

erable  part,  however,  of  our  influence  upon  society  is 
exerted  directly  upon  the  pubhc  and  not  indirectly 
thru  the  politicians.  Strikes  are  more  likely  to  be 
settled,  not  by  legislation  or  political  action,  but  by 
both  the  strikers  and  their  employers  feeling  that  the 
interests  of  the  public  must  not  be  forgotten  in  their 
private  conflicts.  Honesty  and  fair  dealing  in  mer- 
chandising, while  affected  by  the  criminal  law,  is  still 
more  affected  by  the  fact  that  a  reputation  for  unfair 
dealing  is  likely  to  prove  unprofitable  in  business. 
The  social  condemnation  of  one's  associates  has  far 
more  to  do  with  moral,  upright  living  than  any  acts 
of  the  legislature,  however  severe  on  the  one  hand  or 
encouraging  on  the  other.  We  should  see  to  it  then 
that  on  all  questions  of  business  that  are  matters  of 
right  and  wrong  the  business  man  not  only  forms  for 
himself  a  sound  judgment,  but  that  he  gives  vigorous 
expression  to  that  judgment  thru  associations  to  which 
he  may  belong,  thru  the  press,  thru  conversation  with 
his  fellows,  until,  in  fact,  his  shaping  of  public  opinion 
creates  and  maintains  the  highest  moral  and  ethical 
standards. 

REVIEW 

In  what  departments  of  business  does  a  man  most  need  an  inti- 
mate knowledge  of  human  nature  in  order  to  insure  success  ? 

Think  out  carefully  the  number  of  peojile  of  all  classes  who 
take  any  part  in  the  production  of  silk  neckties,  from  the  begin- 
ning of  the  production  of  the  raw  silk  to  its  purchase  by  the 
wearer. 

What  are  the  forces  that  bring  these  various  grouj)s  of  pro- 
ducers into  such  relations  that  the  finished  necktie  is  the  result? 
Consider  carefully  the  various  places  and  ways  in  which  any 
government  affects  the  acts  of  any  of  these  producers. 


18  BUSINESS  AND  THE  GOVERNMENT 

Distinguish  clearly  the  meanings  of  the  words:  society,  state 
and  government. 

How  far  and  in  what  ways  is  it  right  for  a  private  citizen  to 
attempt  to  influence  the  opinion  of  judges?  Of  the  President  of 
the  United  States? 

How  far  ought  members  of  the  legislature  to  yield  their  judg- 
ments regarding  action  on  any  public  measure  to  the  wishes  of 
their  constituents? 


CHAPTER  II 

TAXATION  AND  BUSINESS 

1.  The  funds  of  government. — In  times  of  peace 
as  well  as  in  war  the  work  of  government  must  be  car- 
ried on  by  men  and  women.  These  men  and  women 
must  be  supported.  To  do  its  business  the  govern- 
ment must  have  buildings,  apparatus,  machinery, 
transportation,  laws.  It  must  at  times  have  legal  ad- 
vice. It  must  employ  examining  physicians ;  it  must 
engage  scientific  experts ;  it  must  supervise  costly  ex- 
periments. It  must  make  huge  expenditures  to  meet 
its  needs.  It  must  respond  to  insistent  demands  to 
promote  the  public  welfare.  For  the  carrying  on  of 
its  work,  therefore,  the  government  must  be  provided 
with  funds.  Inasmuch  as  every  citizen  in  the  com- 
munity has  a  share  in  the  benefits  of  government  and 
inasmuch  as  all  governments  are  of  necessity  in  a  posi- 
tion to  enforce  their  will,  it  has  become  customary  to 
exact  contributions  from  their  citizens.  In  earlier, 
cruder  times  these  contributions  took  the  form  of  gifts 
to  the  rulers,  and  these  gradually  became  mere  mat- 
ters of  custom  presented  only  when  asked  for  and 
assuming  the  form  desired  by  the  ruler.  From  this 
system  of  enforced  gifts  have  gradually  grown  up 
the  various  types  and  methods  of  taxation. 

19 


20  BUSINESS  AND  THE  GOVERNMENT 

2.  Share  in  distribution. — The  annual  cost  of  gov- 
ernment in  the  United  States,  in  times  before  the  war, 
was  about  $4,000,000,000,  tho  not  all  this  sum  was 
raised  from  taxation.  Part  was  secured  by  the  sale  of 
public  lands,  by  licenses,  the  Post  Office,  conduct  of 
public  utility  corporations  and  similar  activities.  We 
need,  therefore,  to  recognize  the  difference  between 
income  from  taxation  and  from  other  entirely  differ- 
ent sources.  Among  the  highly  civilized  nations 
taxes  are  high,  but  the  returns  from  them  in  the  way 
of  protection,  care  of  property,  prevention  from  in- 
jury to  the  person,  administration  of  justice  and  other 
conveniences,  are  correspondingly  great. 

It  was  reported  in  1914  by  the  Interstate  Com- 
merce Commission  that  the  railroads  of  the  United 
States  which  have  an  annual  income  of  $1,000,000 
or  more,  paid  taxes  which  averaged  $53  more  per 
mile  than  in  the  previous  year.  Everywhere  the 
burdens  of  government  increase  with  the  modern  de- 
mand for  greater  social  service.  What  the  average 
percentage  of  taxes  to  business  incomes  may  be  it  is 
impossible  to  estimate  accurately,  but  it  is  not  unusual 
for  individuals  and  some  business  concerns  even  in 
peace  times  to  pay  as  much  as  10  per  cent  of  their  in- 
come for  the  support  of  government.  In  war  times 
they  pay  vastly  more.  The  California  Tax  Commis- 
sion in  1906  estimated  the  percentage  of  taxes  to  the 
true  value  of  farm  property' at  1.14  per  cent;  the  per- 
centage of  taxes  to  gross  returns  at  6.88  per  cent  and 
the  percentage  to  net  returns  including  the  farmer's 


TAXATION  AXD  BUSINESS  21 

compensation  at  9.88  per  cent.  In  contrast,  the  com- 
mission showed  that  in  the  manufacturing  industries 
of  the  state,  the  percentage  of  taxes  to  net  product  was 
a  httle  more  than  two  per  cent.  High  as  some  of 
these  figures  seem,  they  are  much  less  than  those  found 
in  other  countries.  In  India,  for  example,  in  rural 
districts  it  used  to  be  common  for  the  farmer  to  be 
compelled  to  give  one  half  or  even  more  of  his  net 
crop  (i.  e.,  crops  less  cost  of  production)  for  govern- 
ment use.  Sometimes  20  per  cent  of  the  gross  crop 
was  taken  as  an  equivalent.  Under  the  British  ad- 
ministration the  general  policy  of  taking  about  2.5  per 
cent  of  the  net  crop  as  a  tax  has  been  fairly  well  es- 
tablished. As  we  know,  under,  the  pressure  of  the 
world  war,  some  govermnents  took  even  as  high  as 
80  per  cent  of  the  excess  profits  gained  in  the  muni- 
tions plants. 

These  figures  show  inequalities  of  taxation.  But 
they  are  cited  here  primarily  to  emphasize  the  point 
that  the  payment  of  taxes  is  an  important  element  in 
the  cost  of  doing  business.  Taxes  constitute  one  of 
the  shares  of  the  product  which  the  state  takes  from 
all.  Every  one  pays  taxes  in  some  way,  and  since 
the  governments  by  their  methods  may  either  stimu- 
late or  discourage,  or  even  destroy  business  and  in- 
dustry, one  sees  that  the  importance  of  the  tax  prob- 
lem can  scarcely  be  overestimated. 

The  absolute  necessity  of  the  Government  securing 
its  income,  the  vital  fact  that  the  Government  affects 
for  good  or  ill  practically  every  activity  of  all  citizens, 


22  BUSINESS  AND  THE  GOVERNMENT 

and  the  constructive  or  destructive  influences  of  taxing 
methods  emphasize  the  gross  injustice  of  tax  dodging, 
the  duty  of  paying  just  taxes  wilKngly,  and  the  im- 
perative need  of  intelligent  study  of  tax  problems. 
The  State's  income  must  be  secured.  If,  thru  cheat- 
ing, I  evade  paying  my  share  of  taxes,  my  neighbor 
who  is  honest  must  pay  more  than  his  proper  part, 
and  morally  speaking,  I  might  as  well  pick  his  pocket. 

3.  Nature  of  taxation. — Professor  Bastable  in  his 
"Public  Finance"  defines  a  tax  as  "a  compulsory  con- 
tribution of  the  wealth  of  a  person,  or  body  of  persons, 
for  the  service  of  public  powers."  While  a  tax  may 
be  levied  upon  property,  it  always  falls  upon  a  person 
who  must  ultimately,  pay  for  it.  The  power  of  shift- 
ing the  burden  of  taxation  from  the  shoulders  of  the 
taxpayer  upon  others  makes  it  extremely  difficult  in 
many  instances  to  determine  what  is  the  best  fomi  of 
taxation.  The  impairing  of  national  capital  by 
wrongly  placed  taxation  may  ultimately  result  in  the 
breakdown  of  national  efficiency.  The  real  source  of 
the  payment  of  taxes  is  income.  The  levying  of  any 
taxes  out  of  proportion  to  the  income  of  any  group 
is  a  great  error,  leading  either  to  fraud  or  to  business 
ruin. 

When,  under  the  general  property  tax,  the  owner 
of  a  bond  of  which  the  rate  of  interest  is  four  per  cent, 
must  yield  one  half  this  income  in  taxation,  it  is  evi- 
dent that  gross  injustice  is  done.  The  income  of  a 
widow  or  child  taxed  to  this  extent  is  unduly  and 
wrongfully  burdened. 


TAXATION  AND  BUSINESS  23 

It  should  always  be  made  clear  in  justification  of 
any  tax,  that  the  public  good  secured  by  the  tax  over- 
I)alances  the  hardships  of  the  individuals  who  pay  it. 
"If  taxation  requires  restriction  of  the  necessary  ex- 
penditure of  the  citizen  and  a  lowering  of  his  standard 
of  living,  it  is  certain  that  the  money  had  best  be  left 
in  his  hands.  When  aggregate  enjoyment  is  secured 
at  the  expense  of  the  industrial  efficiency  of  the  unit, 
it  needs  no  argument  to  show  that  such  taxation  is 
unwise." 

4.  Canons  of  taxation. — Adam  Smith,  the  father 
of  modern  political  economy,  in  his  "Wealth  of  Na- 
tions," written  about  1776,  laid  down  rules  of  taxation 
Avhich  have  been  generally  accepted.  They  were: 
1.  Equality.  "The  subjects  of  every  state  ought  to 
contribute  toward  the  support  of  government  as 
nearly  as  possible  in  proportion  to  their  respective 
abilities."  2.  Certainty.  "A  tax  ought  to  be  cer- 
tain and  not  arbitrary."  3.  Convenience.  "Every 
tax  ought  to  be  levied  at  the  time  and  in  the  manner 
most  likely  to  be  convenient  for  the  contributor  to 
])ay  it."  4.  Economy.  "Every  tax  ought  to  be  so 
contrived  as  both  to  take  as  little  and  to  keep  out  of 
the  pockets  of  the  peo])le  as  little  as  possible  over  and 
a})ove  what  it  brings  into  the  public  treasury  of  the 
state." 

To  these  established  canons  others  have  been  added. 
For  example,  Bastable  says,  "Taxation  should  be 
])roductive,  .  .  .  taxation  should  be  justly  distrib- 
uted .  .  .  and  a  tax  system  should  be  elastic." 


24  BUSINESS  AND  THE  GOVERNMENT 

5.  Incidence  of  taxes,  or  who  pays  taxes? — It  has 
already  been  suggested  that  the  man  who  first  pays  the 
tax  does  not  always  bear  the  burden.  For  example, 
a  tax  levied  upon  a  building  may  be  shifted  by  the 
owner  upon  the  landlord,  who  rents  it.  He,  in  turn, 
may  shift  it  upon  his  tenant  and  the  tenant  in  turn 
may  shift  it,  if  he  is  a  merchant,  upon  the  purchasers 
of  his  goods. 

Three  conditions  may  be  presented  to*  show  how  the 
pajTnent  of  taxes  may  be  made  by  different  gi'oups. 

1.  If  an  industry  has  reached  a  certain  point  in  its 
development  when  the  advantages  of  a  large  scale 
organization  have  been  secured,  the  manufacture  of 
the  product  will  continue  at  substantially  a  constant 
cost  as,  for  example,  in  many  branches  of  the  textile 
industry.  The  selling  price  of  textiles  is  ordinarily 
the  cost  of  production  plus  a  small  margin  of  profit. 
Competition  holds  the  returns  at  about  this  point,  and 
under  present  conditions  a  tax  levied  on  that  industry 
would  be  added  to  the  cost  of  the  goods  and  made  a 
part  of  the  price.  Therefore,  the  consumer  would 
pay  the  tax  in  his  prices.  If  the  demand  should  fall 
off,  it  might  well  be,  that  to  get  rid  of  a  temporary 
oversupply,  the  tax  would  be  assumed  by  the  pro- 
ducer thru  a  lowering  of  the  price,  altho  this  might 
result  in  the  forcing  out  of  business  of  the  least  suc- 
cessful producer. 

2.  To  a  large  group  of  commodities,  especially  the 
jDroducts  of  the  farm,  forest  and  mine,  the  so-called 
"law  of  diminishing  returns"  applies;  that  is,  increas- 


TAXATION  AND  BUSINESS  25 

ing  production  of  such  articles  beyond  a  standard 
quantity  is  possible  only  under  a  more  than  propor- 
tionately increased  cost.  A  land  tax  under  such  cir- 
cumstances becomes  part  of  the  cost  of  the  product 
to  the  man  at  the  margin  of  cultivation;  that  is,  the 
man  who  can  just  survive  economically  and  carry  the 
burden  of  the  tax.  It  is  the  cost  of  production,  in- 
cluding the  tax,  by  this  man  which  really  marks  the 
limit  of  the  market  price.  Those  whose  land  is  more 
productive  or  who  for  other  reasons  produce  more 
cheaply  will  naturally  make  a  larger  profit  as  they 
will  sell  at  the  same  price.  If,  thru  a  lessened  de- 
mand, this  marginal  producer  at  the  gi'eatest  cost  is 
called  upon  to  assume  the  tax  thru  lowering  his  price, 
he  may  be  forced  to  sell  out.  The  tax  might  thus 
fall  upon  the  producer  who  takes  his  place,  and  thus 
again  be  passed  on  to  the  consumer. 

3.  At  the  other  extreme  are  the  "industries  of  in- 
creasing returns"  in  which  an  added  amount  of  capital 
will  frequently  give  a  more  than  proportionate  return 
in  product.  These  industries,  as,  for  example,  street 
railways,  electric  lighting  plants  or  manufacture  of 
patented  articles,  are  monopolistic.  If  his  business  is 
conducted  purely  for  profit,  the  owner  will  fix  the 
price  at  the  point  where  he  will  get  greatest  net  re- 
turns. An  increase  in  price  will  weaken  the  demand ; 
a  decrease  in  price  will  strengthen  the  demand.  Ex- 
periment will  show  the  point  at  which  it  is  unwise  to 
lower  the  price  further  because  the  demand  does  not 
increase  enough  to  add  to  the  total  profit.     If  at  this 


26  BUSINESS  AND  THE  GOVERNMENT 

point  a  tax  is  levied  it  increases  the  price  and  reduces 
the  demand.  Under  these  conditions  the  monopohsts 
may  find  it  most  profitable  to  assume  part  or  all  of 
the  tax  so  as  not  to  decrease  the  demand  too  much. 

A  monopolist  controlling  the  salt  supply  of  a  coun- 
try, a  necessity,  could  probably  shift  the  tax  upon  the 
consumer,  since  the  demand  is  established  and  sub- 
stantially constant.  The  owner  of  a  monopoly  of  a 
luxury  would  find  it  more  difficult  to  shift  the  tax 
since  the  increased  price  would  more  readily  check 
the  demand. 

In  cases  where  the  price  is  fixed  by  custom  or  by 
convenience  in  making  change,  as  is  a  street  car  fare, 
the  monopolists  would  find  it  extremely  difficult  to 
shift  the  tax  and  must  therefore  bear  the  burden. 

From  these  examples  it  is  seen  that  the  strength 
of  business  groups,  fixed  largely  by  social  conditions, 
determines  who  finally  assume  payment  of  the  taxes. 

6.  Forms  of  taxes. — Taxes  are  usually  classified  as 
direct  and  indirect.  The  direct  tax  is  paid  by  the 
person  upon  whom  it  is  levied.  The  indirect  tax  is 
levied  on  commodities  or  persons  producing  com- 
modities with  the  expectation  that  the  owners  of  the 
commodities  will  be  able  to  shift  the  burden  to  some- 
one else. 

The  direct  form  of  tax  has  some  advantages.  It 
is  easier  for  the  tax  officials  to  estimate  the  revenue 
and  to  provide  for  the  collection.  But,  direct  taxes 
are  generally  unpopular.  They  frequently  encour- 
age  fraud.     Indirect  taxes   are   popular,   since   the 


TAXATION  AND  BUSINESS  27 

burden  is  concealed.  The  indirect  taxes,  however, 
are  often  difficult  to  collect;  they  lead  to  government 
extravagance  in  expenditures  because  the  income  is 
uncertain,  and  they  often  lay  a  heavy  burden  upon  in- 
dustr^^  The  most  common  direct  taxes  are  the  gen- 
eral property  tax,  the  income  tax,  the  inheritance  tax 
and  the  excess  profits  tax.  The  most  typical  forms 
of  indirect  taxes  are  the  tariff  and  excise  taxes. 

7.  General  property  tcuc. — In  earlier  times  when 
the  chief  forms  of  property  were  land  and  personal 
property  in  the  forms  of  animals,  tools,  weapons  and 
household  goods,  a  general  property  tax  could  be 
levied  with  a  reasonable  degree  of  certainty  that  there 
would  not  be  grave  injustice  done  in  the  inequality  of 
tax  burdens.  Abihty  to  pay  would  be  measured  rea- 
sonably well  by  the  values  of  the  property  thus  esti- 
mated. Since,  however,  many  forms  of  wealth  have 
become  intangible  in  the  forms  of  stocks  and  bonds, 
mortgages  and  other  legal  claims,  it  is  practically  im- 
possible to  know  the  amount  of  any  man's  wealth  and 
thus  to  assess  it  fairly.  JVIoreover,  few  assessors  have 
any  fair  judgment  of  the  value  of  many  such  proper- 
ties. Practically,  all  tax  authorities  of  the  present 
day  condemn  the  general  property  tax. 

8.  Modified  forms. — To  avoid  some  of  the  difficul- 
ties, certain  modifications  have  been  introduced;  for 
example,  mortgages  are  taxed  when  they  are  regis- 
tered ;  public  service  corporations  are  taxed  upon  their 
gross  earnings;  corporations  are  taxed  upon  their 
stocks  and  bonds. 


28  BUSINESS  AND  THE  GOVERNMENT 

From  all  these  various  examples  it  becomes  evident 
that  the  general  property  tax  has  been  largely  dis- 
credited, and  that  there  is  need  for  a  reorganization  of 
the  taxing  system  in  most  of  om*  states.  A  suggest 
tion  frequently  made  is  that  the  government  exempt 
entirely  personal  property  and  that  there  be  a  com- 
bination of  income  tax  and  an  inheritance  tax  with  a 
tax  on  land  or  land  values  for  local  revenue. 

9.  Federal  income  tax. — It  is  generally  believed 
that  by  taxing  incomes  we  can  approach  a  fair  degree 
of  equality  in  taxation,  altho  there  is  usuall}'-  strenu- 
ous objection  in  this  country  to  the  income  tax  as  be- 
ing too  inquisitorial.  There  can  be  no  question  that 
the  income  tax  is,  for  a  considerable  period  after  its 
introduction  into  any  country,  very  difficult  to  ad- 
minister. It  is  extremely  puzzling  to  determine  the 
net  income  from  the  gross  income. 

Usually  certain  distin'ctions  are  made  regarding  the 
character  of  the  incomes,  describing  them  as  salaried 
incomes,  profits  and  dividends,  or,  as  in  England, 
"earned  and  unearned  incomes."  Generally  also  an 
exemption  is  made  of  a  minimum  income  which  re- 
lieves a  large  proportion  of  the  people  from  the  pay- 
ment of  the  tax. 

During  the  Civil  War,  the  United  States  Govern- 
ment levied  an  income  tax  of  three  per  cent  on  all  in- 
comes^ over  $800.  Later,  modifications  were  made 
in  the  exemption  features  and  a  graduated  plan  was 
devised  for  larger  incomes.  This  tax  was  not  success- 
ful.    Our  basic  law  of  September  6,  1916,  follow- 


TAXATION  AND  BUSINESS  29 

ing  the  model  of  the  original  law  of  October,  1913, 
had  a  normal  tax  of  two  per  cent  on  all  incomes  in 
excess  of  $3,000  for  single  and  $4,000  for  married 
persons,  also  an  additional  tax  of  from  one  to  13  per 
cent  upon  any  excess  of  income  above  $20,000.  Octo- 
ber 3,  1917,  a  sweeping  amendment  to  the  act,  called 
the  War  Income  Tax  reduced  the  exemptions  to 
$1,000  and  $2,000  and  levied  an  additional  rate  of 
two  per  cent  on  all  net  incomes.  This  makes  a  two 
per  cent  rate  on  incomes  from  $1,000  or  $2,000  up  to 
$3,000  or  $4,000.  It  also  levied  a  further  addi- 
tional tax  of  one  per  cent  on  all  incomes  above  $5,000 
rising  on  an  increasing  scale  to  a  maximum  of  50 
per  cent,  thus  giving  a  total  maximum  on  incomes 
above  $2,000,000  of  63  per  cent.  In  1918  was  passed 
a  still  further  amendment  originally  designed  to  raise 
some  $2,400,000,000  to  meet  war  needs  but  after  the 
signing  of  the  armistice  somewhat  modified  so  as  to 
reduce  the  yield.  In  this  act  the  normal  rate  for  in- 
comes under  $4,000  is  four  per  cent.  All  income  in 
excess  of  $4,000  pays  a  "normal"  rate  of  eight  per 
cent  with  a  graduated  surtax  on  incomes  from  $5,000 
to  $1,000,000  rising  from  one  per  cent  to  65  per  cent 
giving  a  possible  maximum  rate  of  73  per  cent. 

10.  Other  income  taoces. — Outside  of  the  income 
taxes  levied  by  several  of  the  states  of  the  Union, 
the  most  important  for  our  consideration  is  that  of 
Great  Britain.  There  the  tax  dates  back  to  1798,  and 
with  a  few  months  excepted  has  been  continuously  in 
force.     For  purposes  of  taxation  income  is  divided 

XXIV — 4 


30  BUSINESS  AND  THE  GOVERNMENT 

into  five  classes,  namely,  (a)  that  derived  from  owner- 
ship of  lands  and  buildings,  (b)  from  the  occupation 
of  land,  (g)  from  investments  in  public  funds,  (d) 
from  the  trades,  professions  and  employments,  (e) 
from  the  emoluments  of  public  offices. 

A  rate  of  6s.  in  the  pound  sterling  (30  per  cent)  is 
applied  to  all  corporations  and  non-residents  but  for 
residents  within  the  United  Kingdom  a  sj^stem  of 
graduation  and  differentiation  is  employed.  Under 
this  scheme  the  rates  on  all  taxable  incomes  under 
c£2500  are  scaled  downward  while  those  on  incomes 
of  over  <£2500  are  increased  by  supertaxes.  Since 
1918  the  rates  thus  established  range  from  2s.  to  5s. 
3d.  in  the  case  of  earned  incomes  and  from  3s.  to 
6s.  on  unearned  incomes  between  £130  and  £2500. 
The  supertax  starts  at  the  rate  very  slightly  in  excess 
of  the  normal  and  reaches  a  maximum  of  4s.  6d.  in 
the  pound  on  sums  of  £10,000  or  over. 

In  March,  1920,  the  Royal  Commission  on  the  In- 
come Tax  made  a  voluminous  report,  which  up  to  the 
time  of  the  final  revision  of  this  volume  had  not  been 
acted  upon. 

11.  Corjyoration  taxes. — In  many  of  the  states  a 
tax  on  corporations  was  earlier  levied  only  under  the 
general  property  tax,  or  in  the  forai  of  fees  on  incor- 
poration. In  1868  Pennsylvania  levied  a  tax  of  3 
per  cent  on  net  earnings.  Since  then  several  states 
have  levied  special  taxes  sometimes  on  earnings,  net 
or  gross,  sometimes  on  capital  stock,  on  franchise,  etc. 

In  1909  the  Payne  Aldrich  Act  levied  a  special 


TAXATION  AND  BUSINESS  31 

excise  tax  on  corporations.  Since  1913  corporations 
have  been  taxed  under  the  federal  income  tax  law.     In 

1916  the  rate  was  fixed  at  2  per  cent  of  the.  income 
with  an  additional  10  per  cent  on  undistributed  sur- 
plus. In  1917  the  rate  was  made  6  per  cent.  In 
1919  the  rate  was  fixed  at  10  per  cent  on  net  income. 

12.  Excess  pi'ojits. — Owing  to  the  special  changes 
wrought  in  business  by  the  war,  and  the  belief  that 
many  corporations  had  won  undue  profits  from  the 
war  a  special  tax  was  levied  upon  excess  profits  based 
on  profits  before  the  war  in  1911,  1912  and  1913.     In 

1917  the  law  fixed  the  rates  on  a  sliding  scale  pro- 
portioned to  the  percentages  of  net  income.  In 
addition  to  the  regular  corporation  tax  an  additional 
levy  was  made  on  net  income  in  excess  of  8  per  cent 
of  invested  capital  plus  $3,000.  The  minimum  was 
20  per  cent  for  income  not  in  excess  of  15  per  cent  of 
invested  capital,  the  maximum  60  per  cent  on  income 
exceeding  33  per  cent  of  invested  capital.  In  1919 
the  rate  was  increased  on  a  new  basis  of  reckonino-. 
For  that  year  and  each  taxable  year  thereafter  the 
rate  was  fixed  at  20  per  cent  of  the  net  income  in 
excess  of  the  excess  profits  credit  and  in  excess  of  20 
per  cent  of  the  invested  capital.  Net  income  in  ex- 
cess of  20  per  cent  of  the  invested  capital  is  at  the  rate 
of  40  per  cent. 

In  Great  Britain  also  an  excess  profits  duty  has 
been  levied  as  a  war  measure,  the  rate  running  as  high 
as  a  maximum  of  80  per  cent  of  the  so-called  excess 
profits  over  a  rate  based  on  the  pre-war  period. 


32  BUSINESS  AND  THE  GOVERNMENT 

13.  Other  countries. — ]Most  of  the  British  colonies 
and  other  countries  such  as  France,  Ital}^,  Sweden, 
Switzerland,  Japan,  Holland,  Denmark,  have  gradu- 
ated income  taxes.  After  the  outbreak  of  the  war 
supertaxes  were  added  and  in  a  few  cases,  as  South 
Africa,  Canada,  Denmark,  France,  Norway,  excess 
profits  and  war  profits  taxes  are  also  found. 

14.  InJieritance  taoc, — The  inheritance  tax,  called 
death  duties  in  England,  is  rapidly  becoming  one  of 
the  most  important  forms  of  taxation  in  the  United 
States  as  elsewhere.  The  advisability  of  the  state  tax- 
ing inheritance  is  based  ujDon  (1)  the  fundamental 
right  to  curtail  or  control  bequests,  (2)  the  possible 
wisdom  of  checking  the  growth  from  generation  to 
generation  of  large  estates  and  (3)  the  fact  that  the 
tax  is  easy  to  collect. 

Usually  the  rate  of  the  inheritance  tax  increases 
inversely  to  the  nearness  of  relationship  of  the  heir 
to  the  deceased.  Cousins,  for  example,  pay  a  higher 
rate  than  children,  who  are  often  exempt.  Again, 
the  holders  of  small  estates  are  usually  exempt  from 
taxation.  In  many  states  the  exemption  is  as  high 
as  $10,000,  in  New  York,  $5,000  for  the  near  kin, 
$500  for  others.  The  rates  of  taxation  vary.  The 
average  is  between  15  per  cent  and  20  per  cent  for 
large  inlieritances,  a  smaller  percentage  for  small 
amounts.  As  a  legacy  increases  in  amount,  the  tax 
usually  increases  progressively.  In  New  York  State 
the  rate  is  one  per  cent  on  $5,000,  increasing  until  it 
reaches  from  four  to  eight  per  cent  on  all  inheritances 


TAXATION  AND  BUSINESS  33 

of  $200,000  or  more.  In  other  states  it  reaches  25 
per  cent  or  even  30  per  cent.  So  heavy  a  tax  en- 
courages the  distribution  of  a  large  estate  before  the 
death  of  the  owner.  JNIoreover,  so  great  a  burden 
encourages  owners  to  fix  their  legal  residence  in  states 
where  the  burden  is  lighter.  Many  ingenious  de- 
vices on  the  principle  of  the  holding  company  have 
been  worked  out  to  avoid  such  heavy  legal  exactions. 
As  a  war  measure  in  1916  the  Federal  Government 
levied  a  tax  on  the  transfer  of  the  net  estate  of  the 
decedent  (not  on  the  heirs)  at  a  rate  graduated,  not 
at  all  on  nearness  of  kin  of  heir,  but  solely  on  value  of 
estate.  The  rates  ran  from  one  per  cent  on  estates 
not  exceeding  $50,000  to  10  per  cent  on  estates  above 
$5,000,000.  In  1917  the  rates  were  increased  one- 
half  per  cent  on  the  lowest  rate  to  10  per  cent  addi- 
tional on  estates  above  $10,000,000.  For  1919  the 
plan  was  changed  to  a  tax  upon  the  amounts  received 
by  the  separate  beneficiaries  and  the  rates  run  from 
one  per  cent  to  25  per  cent. 

15.  Justice  and  tcuration. — It  is  evident  that  noth- 
ing more  than  rough  justice  can  be  attained  in  any 
scheme  of  taxation.  On  account  of  the  unavoidable 
inequalities  of  assessment  and  the  fact  that  incomes 
vary  amazingly  with  different  types  of  property,  the 
general  property  tax  clearly  ought  to  be  abolished. 
Many  questions  naturally  arise  when  one  attempts  to 
furnish  a  substitute.  Ought  taxation  to  be  used  as  a 
means  of  modifying  social  conditions;  for  example,  to 
limit  in  any  way  tlie  growth  of  large  fortunes?     Is 


34*  BUSINESS  AND  THE  GOVERNJUENT 

ability  to  pay  proportional  to  the  amount  of  the  in- 
come? For  instance,  under  existing  conditions  in  the 
United  States  is  a  man  with  an  income  of  $100,000 
able  to  pay  more  than  ten  times  as  much  as  one  with 
$10,000  or  a  man  with  $10,000  able  to  pay  more  than 
ten  times  as  much  as  one  whose  income  is  $1,000?  It 
is  thought  that  sacrifice  of  personal  comfort  is  prob- 
ably less,  proportionately,  as  the  income  increases. 
It  is  for  this  reason  usually  that  progi*essive  taxes  are 
levied. 

Owing  to  the  indirect  system  by  which  our  laboring 
men  are  taxed  thru  their  use  of  tobacco  and  play- 
ing cards  under  our  internal  revenue  laws  and  thru 
their  use  of  clothing  and  ordinary  articles  of  home 
use  under  the  tariff,  they  are  generally  exempted 
from  the  payment  of  the  property  and  inheritance 
taxes  owing  to  the  minimum  exemptions. 

16.  Single  tax. — The  single  tax,  first  made  a  po- 
litical issue  by  Henry  George  in  "Progress  and  Pov- 
erty," is  based  upon  the  assumption  that  the  increase 
in  the  values  of  land  is  due  solely  to  increase  of  popu- 
lation and  progress  of  civilization,  and  is  a  source 
of  income  unearned  by  the  owner  of  the  property. 
Single  taxers  have  generalh^  assumed  that  a  tax  ujDon 
land  value  would  be  sufficient  to  meet  all  the  expenses 
of  government,  even  tho  in  many  cases  it  would  not 
need  to  be  confiscatory  of  the  entire  amount  of  the 
unearned  increment. 

The  discussion  of  this  theory  has  led  to  a  more  care- 
ful study  of  the  causes  of  the  increase  in  the  values 


TAXATION  AND  BUSINESS  35 

of  land  and  to  a  keener  analysis  of  the  entire  question 
of  unearned  increments  of  value  in  other  fields. 

The  chief  objections  to  the  single  tax  theory  are 
ordinarily : 

(1)  That  the  amount  received  from  such  a  tax 
would  vary  most  unevenly  in  different  localities,  not 
at  all  in  proportion  to  the  population  and  often  not 
at  all  in  proportion  to  the  ability  to  pay  taxes. 

(2)  That  in  very  many  instances  the  tax  would 
not  be  sufficient  to  meet  the  needs  of  government. 

(3)  That  inasmuch  as  many  other  sources  of  in- 
comes besides  land  have  likewise  an  element  of  un- 
earned value  in  them,  being  brought  about  largely  by 
increase  in  population  and  in  civilization,  the  tax  levied 
on  land  values  alone  would  be  unjust.  Incomes,  for 
example,  of  many  merchants,  of  lawyers,  of  phy- 
sicians, of  stock  brokers,  of  bankers,  are  similarly  af- 
fected with  little  or  no  reference  to  the  question  of  real 
estate  holdings. 

(4)  No  provision  is  regularly  made  for  decreases 
in  taxation,  altho  there  are  very  many  instances  of  de- 
crease in  land  values;  and  finally 

(5)  The  present  holders  of  land  in  very  many  in- 
stances have  already  paid  full  value  therefor  and 
have  in  consequence  paid  the  penalty  of  the  unearned 
increment.  It  would  be  unjust  and  morally  wrong 
for  these  land  holders  to  be  deprived  of  their  prop- 
erty without  compensation,  whetlier  or  not  one  were 
to  agree  with  tlie  general  principle  of  the  unearned 
increment  in  land  values. 


36  BUSINESS  AND  THE  GOVERNMENT 

17.  Indirect  taxation. — The  existence  of  a  dupli- 
cate forni  of  government  such  as  is  found  in  America 
in  our  Federal  and  State  Governments  has  made  it 
seem  advisable  to  separate  as  much  as  possible  our 
forms  of  taxation.  Until  late  years  the  Federal  Gov- 
ermnent  used  only  indirect  methods  of  taxation  for 
raising  its  revenues — tariff  duties  and  excise  duties. 
There  have,  however,  been  several  instances  of  other 
taxes  in  emergencies;  for  example,  the  income  tax 
during  the  Civil  War  and  in  1894.  Again,  in  1912, 
under  the  new  Administration,  an  income  tax  was 
taken  up  as  a  matter  of  permanent  policy. 

The  Federal  Government  by  the  efficiency  of  its 
administration  has  in  many  ways  offset  some  difficul- 
ties connected  with  indirect  taxes.  The  most  impor- 
tant of  these  taxes  are  the  customs  duties  and  the  ex- 
cise or  internal  revenue  taxes.  The  customs  duties 
will  be  discussed  at  length  in  the  following  chapter. 

18.  Infernal  revenue  taoces. — Besides  the  tariff,  the 
United  States  had  for  years  selected  a  limited  number 
of  domestic  articles  of  luxury  or  those  of  minor  im- 
portance as  objects  of  an  excise  tax.  These  are 
chiefly  tobacco,  and  formerly  spirits  and  fermented- 
liquors.  From  these  the  income  in  1914  was  $304,- 
000,000.  From  the  revenue  viewpoint  these  have 
been  admirable  objects  of  taxation  as  is  shown  by 
the  large  income,  the  steadiness  of  the  income  and 
the  ease  with  which  the  tax  is  collected.  At  various 
times,  especially  in  emergencies,  such  as  the  Civil 
War  and  especially  the  Great  War,  other  excise  taxes 


TAXATION  AND  BUSINESS  37 

have  been  added,  such  as  heenses  for  theatres,  mov- 
ing pictures,  stamp  taxes  upon  patent  medicines,  upon 
legal  documents  of  various  kinds  and  fees  required 
from  certain  types  of  bankers  and  brokers. 

19.  Ideal  system  of  taojation. — It  is  not  possible  to 
fix  any  ideal  system  of  taxation  any  more  than  one 
can  plan  an  ideal  form  of  government.  JNIuch  is  de- 
pendent upon  local  conditions;  much  is  dependent 
upon  the  form  of  government;  much  upon  the  need 
for  revenues;  much  upon  the  work  required  of  the 
government.  A  countr}'  so  constituted  or  situated 
that  it  must  maintain  a  large  army  and  navy^  must 
necessarily  bear  a  heavier  burden  of  taxation  than 
is  otherwise  required. 

20.  Export  duties. — A  country  possessing  a  sub- 
stantial monopoly  of  articles  much  needed  in  other 
countries  may  wisely  levy  an  export  duty.  Some  of 
the  Federated  jNIalay  States  thus  secure  a  large 
revenue  from  an  export  duty  on  tin,  the  entire  burden 
of  which  must  be  borne  by  foreign  consumers,  inas- 
much as  this  tin  is  needed  to  supply  the  demand.  In 
like  manner,  no  satisfactory  substitute  for  Manila 
hemp  in  the  making  of  ropes  for  the  use  of  ships  hav- 
ing been  found,  an  export  duty  on  the  products  of 
hemp  yields  an  excellent  revenue  to  the  Philipi)ine 
Islands  without  imposing  any  burden  upon  the  in- 
habitants. Such  conditions  exist  in  only  a  few  coun- 
tries. 

For  our  purposes,  our  internal  excise  taxes  seem  to 
have   worked   admirably.     Our   tariff   taxes,    owing 


38  BUSINESS  AND  THE  GOVERNMENT 

largely  to  our  political  conditions,  may  be  very  se- 
verely criticised.  They  doubtless  can  be  greatly  im- 
proved, if  our  tariff  commission  can  be  given  a  free 
hand  and  shows  the  judgment  to  put  them  gi'adu- 
ally  upon  a  scientific  basis.  An  income  tax,  with  all 
its  drawbacks,  is  still  an  excellent  source  of  revenue. 
When  experience  shall  have  improved  the  methods  of 
reckoning  and  collecting,  custom  shall  have  lessened 
the  repugnance  to  its  inquisitorial  features,  and  an 
adjustment  to  the  burden  of  other  taxes  shall  have 
been  secured,  this  is  likely  to  become  a  valuable  tax. 

21.  State  taxation. — In  our  states,  the  inheritance 
tax  and  proper  fonns  of  the  corporation  tax  are  to 
be  recommended.  The  personal  property  tax,  as  it 
now  stands,  should  probably  be  abolished.  The  land 
tax,  with  proper  distinction  between  land  values  and 
improvements  on  land,  may  well  be  retained.  If 
more  revenues  are  needed  than  would  come  from  the 
sources  named,  together  with  fees  and  licenses,  it  is 
probable  that  there  may  also  be  added  as  has  already 
been  done  in  some  states  either  a  state  income  tax 
which  could  be  based  in  part  on  returns  made  to  the 
Federal  Government,  or  a  presumptive  income  tax 
based  on  rentals  and  salaries.  These,  in  whole  or 
in  part,  would  provide  to  advantage  and  with  a  rea- 
sonable degi'ee  of  justice,  adequate  sources  of  income. 

22.  Public  finance. — The  Government  is  a  perma- 
nent agent  for  the  satisfaction  of  human  wants.  It 
has  long  been  agreed  that  protection  of  property  and 
person  can  be  better  provided  thru  the  medium  of 


TAXATION  AND  BUSINESS  39 

the  Government  than  by  the  individual.  Various 
other  wants  of  the  individual  can  also  be  better  satis- 
fied by  the  Government  than  by  the  individual  thru 
private  action.  How  far  any  government  shall  be- 
come the  agent  of  its  citizens  in  promoting  the  com- 
mon welfare  depends  entirely  upon  the  stage  of  civil- 
ization, the  circumstances  of  the  community  and  the 
will  of  the  j)eople  themselves. 

Public  finance  is  the  name  given  to  the  collecting 
of  revenues  and  their  expenditure  for  public  pur- 
poses. Consequently,  taxation  is  one  phase  of 
finance,  public  expenditure  tlie  other.  The  rapid 
growth  of  public  finance  is  shown  by  a  statement  of 
the  amounts  expended.  In  the  year  1810,  the  United 
States  government  spent  $8,474,000;  in  1914,  $914,- 
000,000  exclusive  of  debt  charges  and,  of  course,  be- 
fore special  war  charges  began.  Since  the  war  these 
expenditures  liave  increased  enormously  and  there 
seems  little  likelihood  of  a  marked  decrease  for  years 
to  come.  The  expenditures  of  states  and  cities  show 
similar  growths.  According  to  late  reports,  in  1902 
the  cities  in  the  United  States  of  over  25,000  in- 
habitants were  spending  more  than  $469,000,000 ;  and 
in  1912  they  spent  $900,000,000  in  addition  to  sums 
borrowed. 

23.  Importance  of  jmhlic  expenditures. — Between 
10  and  15  per  cent  of  the  national  income  is  spent  in 
times  of  peace  by  public  agencies.  Federal,  state  and 
local,  for  education,  roadways,  care  of  defectives,  sani- 
tation, mihtary  and  naval  programs,  and  other  objects 


40  BUSINESS  AND  THE  GOVERNMENT 

included  in  modern  state  expenditures.  Many  pro- 
jects of  great  social  importance  are  proposed  that 
would  increase  this  expenditure  still  more,  but  the 
burden  upon  the  citizens  who  themselves  often  have 
only  small  incomes  has  become  so  great  that  many 
proposals  for  protection  from  disease,  from  accidents, 
for  better  education  and  for  proper  police  protection 
even,  are  neglected.  Nevertheless,  there  is  a  con- 
tinued demand  for  social  betterment  movements  and 
the  storm  center  of  the  struggle  for  improvement  is 
public  finance.  The  state  has  first  claim  upon  the 
wealth  of  the  citizens,  a  fact  particularly  apparent  in 
times  of  war,  but  good  sense  lays  down  certain  restric- 
tions in  regard  to  public  expenditures.  It  is  clear 
that  the  collection  of  taxes  should  be  made  just  as  in- 
expensive and  as  effective  as  possible  and  that  expen- 
ditures should  be  carefully  guarded. 

Altho  efforts  have  been  made  to  fix  principles  of 
government  expenditures  there  is  no  definite  rule  by 
which  the  amount  may  regularly  be  determined.  The 
state  should  return  a  real  value  for  what  it  expends. 
The  economic  and  political  value  of  the  individual 
citizen  should  be  augmented  by  the  social  expenditures 
for  education,  sanitation  and  protection.  The  social 
surplus,  that  the  members  receive,  beyond  the  neces- 
sary elemental  cost  of  maintaining  life  in  the  house- 
hold, should  be  maintained.  The  growth  of  civiliza- 
tion is  dependent  upon  this  social  surplus.  If  the 
state  is  absorbing  this  surplus  too  rapidly  or  is  actu- 
ally preventing  the  saving  of  capital  for  future  eco- 


TAXATION  AND  BUSINESS  41 

nomic  enterprises,  then  the  public  expenditure  is  too 
large.  Careful  and  constant  investigation  thru  well- 
equipped  statistical  bureaus,  manned  by  highly 
trained  men,  can  alone  furnish  an  adequate  solution 
of  public  finance. 

24.  War  expenditures,  loans  and  taxation. — In  the 
fiscal  year  1913-1914  the  disbursements  of  the  Fed- 
eral Government  barely  exceeded  one  billion  dollars. 
For  the  fiscal  year  ending  June  30,  1918,  the  Gov- 
ernment needs  amounted  to  some  twenty  billion  dol- 
lars including  necessary  war  credits  to  the  Allies. 
These  simple  figures  are  eloquent  of  the  sacrifices 
which  modern  warfare  requires,  and  indicate  the  pro- 
found changes  which  war  has  wrought  in  the  relation 
of  the  individual  to  the  state. 

Such  an  enormous  expenditure  has  meant  a  com- 
plete realignment  of  the  relations  of  private  wealth 
and  the  Government  now  and  hereafter. 

In  the  sudden  emergency  of  war  great  sums  are 
needed  before  it  is  possible  to  increase  the  revenue 
adequately  by  new  taxes.  This  need  is  usually  met 
by  government  loans  of  various  forms.  In  our  own 
experience  in  the  great  war  we  made  five  loans,  the 
largest  in  the  world's  history. 

At  the  same  time,  as  we  have  seen,  the  revenues 
have  been  enormously  increased  from  slightly  less 
than  $1,000,000,000  in  1914  to  a  sum  in  excess  of 
$4,000,000,000  in  1919  which  was  planned  for  $8,- 
000,000,000  if  peace  had  not  come.  Such  enormous 
sums  are  not  needed  in  peace.     Congress  limited  its 


42  BUSINESS  AND  THE  GOVERNMENT 

estimates  to  about  $4,000,000,000  for  1920.  Yet  we 
shall  never  return  to  the  old  standards.  The  burden 
of  our  huge  debts  of  some  twenty-five  billions  is  to  a 
considerable  extent  borne  by  our  recent  allies  to  whom 
we  granted  credits  of  some  nine  and  one  half  billions. 
From  this  source,  to  be  increased,  we  shall  obtain  an 
income  of  some  $500,000,000  a  year.  Our  net  debt 
deducting  these  loans  is  some  $15,000,000,000  and 
to  carry  this,  even  tho  its  burden  should  be  taken  up 
later  thru  long  term  obligations  by  the  next  genera- 
tion, we  shall  need  large  revenues.  iMoreover,  a  new 
era  has  come.  Army,  education,  public  enterprises 
like  public  lands,  water  powers,  navigation,  have  taken 
on  new  aspects.  In  this  new  world,  government  will 
doubtless  play  a  greater  part.  We  must  look  ahead 
to  heavy  permanent  taxes,  accompanied,  I  believe, 
by  an  increased  prosperity  that  will  lessen  the  burden. 

REVIEW 

How  did  the  practice  of  taxation  arise? 

By  what  principles  ought  a  government  to  fix  the  maximum 
and  minimum  limits  of  taxation? 

What  are  the  chief  defects  of  the  general  property  tax? 

\\Tiy  is  the  inheritance  tax  easy  to  collect? 

Does  it  conform  to  Adam  Smith's  third  canon  of  taxation? 

Why  is  it  not  practicable  to  frame  an  ideal  system  of  taxation  ? 

What  is  the  distinction  between  direct  and  indirect  taxes  and 
what  are  the  merits  and  disadvantages  of  each? 

What  should  be  the  general  relations  between  taxing  systems 
of  national,  state  and  local  government? 

During  the  progress  of  a  great  war  how  would  the  amounts  of 
special  government  income  for  war  purposes  be  normally  distrib- 
uted between  government  loans  and  taxation  ? 


CHAPTER  III 

GOVERNMENT.  'NATURAL  RESOURCES  AND 
THE  FARMER 

1.  American  land  policies. — From  the  foundation 
of  our  Government  until  within  a  few  years,  its  policy 
was  to  rely  for  the  development  of  our  country's  re- 
sources, mines,  forests,  farms,  upon  the  initiative  and 
self-reliance  of  individuals.  Only  in  great  permanent 
improvements,  like  canals  and  roads,  that  must  be 
public  in  use,  did  either  state  or  nation  rely  upon  the 
government.  The  first  great  step  taken  to  develop 
our  agricultural  resources  took  definite  shape  in  the 
great  Homestead  Act  of  1862,  which  in  amended  form 
is  still  in  force.  By  this  act  160  acres  of  surveyed 
agricultural  land  were  given  to  adult  citizens  and 
heads  of  families  upon  proof  of  five  years'  residence 
and  cultivation.  No  charge  was  made  with  the  ex- 
ception of  certain  fees  ranging  from  $20  to  $.50.  To 
this  liberal  land  policy  was  due  the  settling  of  the 
Middle  West  and  the  development  of  this  hitherto 
unparalleled  rich  territory.  In  the  development  of 
the  arid  lands  that  recjuired  irrigation  or  dry  cultiva- 
tion the  laws  have  been  modified,  but  the  underlying 
purpose  is  much  the  same. 

2.  Mineral  lands. — At  first  mineral  lands  were  re- 

43 


44  BUSINESS  AND  THE  GOVERNMENT 

served  from  sale  and  leased  for  royalties.  But  later 
they  too  were  almost  given  away  under  the  agricul- 
tural settlement  laws.  The  priceless  iron  deposits  of 
Minnesota  now  held  by  the  United  States  Steel  Cor- 
poration were  originally  sold  for  a  nominal  sum. 
The  state  of  INIinnesota,  from  the  small  tracts  given  to 
it  for  educational  purposes,  has  already  realized  a 
vast  education  fund  and  will  probably  net  in  royalties 
at  $.25  per  ton  not  less  than  $250,000,000  from  its 
iron  ore  deposits. 

3.  Forests. — Timber  lands  also  were  first  taken  up 
under  the  settlement  laws.  The  wonderful  white  pine 
forests  lying  around  the  Great  Lakes  passed  under 
private  ownership  at  nominal  prices,  and  for  imme- 
diate private  profit  were  sacrified  to  the  axe  or  in 
many  cases  were  destroyed  by  fire.  Much  of  this 
land,  however,  has  since  become  valuable  for  agricul- 
tural purposes. 

4.  Conservation  of  natural  resources. — Our  gov- 
ernmental policy  toward  not  only  agricultural  land 
but  toward  our  other  great  natural  resources  as  well, 
has  of  late  years  changed  from  one  of  sole  reliance 
upon  unrestricted  private  interests,  w^hich  in  many  in- 
stances led  to  wasteful  exploitation,  to  one  of  conser- 
vation. As  a  result  of  a  popular  demand  for  conser- 
vation of  natural  resources  President  Roosevelt  in 
May,  1908,  called  a  conference  of  governors  at  the 
White  House  and  later  appointed  two  commissions 
to  study  the  subject.  Since  that  time  steady  prog- 
ress has  been  made  in  furthering  the  work. 


GOVERNMENT  AND  THE  FARMER  45 

5.  Reclamation  service. — In  1902,  the  Federal 
Reclamation  Act  was  passed  providing  for  the  con- 
struction and  operation  of  works  for  the  irrigation  of 
arid  pubhc  lands  in  the  West.  This  Act  was 
amended  in  1914  by  the  Reclamation  Extension  Act, 
which  made  radical  changes  in  the  sections  pertaining 
to  the  use  of  funds  and  the  methods  of  making  pay- 
ments. Settlers  may  now  repay  the  cost  in  twenty 
annual  instalments. 

6.  Federal  Government  grants  land  to  states. — 
New  States  have  regularly  received  land  for  the  sup- 
port of  common  schools,  and  since  1850  some  60,000,- 
000  acres  of  swamp  lands  have  also  been  granted  to 
the  several  states  to  be  reclaimed.  Even  larger  tracts 
have  been  given  in  aid  of  canals,  turnpikes,  levees  and 
other  public  works,  especially  raih'oads.  Coal  and 
iron  lands  pass  with  railroad  grants.  Other  mineral 
and  saline  lands  are  usually  reserved  from  gi'ants  and 
preemptions  and  are  sold. 

7.  Public  parks. — One  of  the  most  important  uses 
that  have  been  made  of  the  public  lands  by  the  United 
Sta;tes  Government  has  been  the  reservation  of  some 
vast  tracts,  as  pubHc  parks,  usually  those  containing 
some  of  the  noblest  and  most  beautiful  mountain 
scenery  in  the  country,  with  the  expectation  that  the 
primary  use  to  be  made  of  these  parks  shall  be  for 
recreation.  Most  of  them  contain  scenic  wonders,  in 
some  cases  archaeological  ruins,  and  in  many  instances 
also  important  mineral  deposits.  In  1906,  an  Act  of 
Congress  authorized  the  President  to  reserve  by  proc- 

XXIV— 5 


46  BUSINESS  AND  THE  GOVERNMENT 

lamation  as  national  monuments  such  public  land  as 
contained  historic  landmarks  and  other  places  of  his- 
toric and  Scientific  interest.  Under  this  Act  there 
have  been  brought  under  the  control  of  the  United 
States  such  natural  wonders  as  the  petrified  forest  of 
Arizona,  the  Grand  Canyon  of  the  Colorado  and 
Mount  Olympia  in  Washington. 

8.  Plans  for  conservation. — Franklin  K.  Lane, 
formerly  Secretary  of  the  Interior,  made  during  his 
tenure  of  office,  a  ver}^  careful  study  of  the  conserva- 
tion situation.  The  government  adopted  a  progres- 
sive policy  as  a  result  of  these  investigations  and 
steady,  rather  than  spectacular  progress  has  been 
made  toward  its  realization.  In  January,  1920,  fur- 
ther legislation  gave  strength  to  the  efforts  of  the 
Departments  of  the  Interior  and  of  Agriculture  in 
their  efforts  to  conserve  natural  resources  and  reclaim 
non-productive  land.  An  outstanding  feature  of  the 
Lane  conservation  policy  is  that  of  leasing  natural 
resources  such  as  coal,  oil,  and  gas  lands,  water  power 
sites,  and  irrigation  projects  together  with  the  con- 
servation of  the  radium  bearing  soils.  Already  a 
large  measure  of  success  has  been  achieved  along  all 
these  lines.  In  October,  1920,  the  coal  mining  in- 
terests of  a  number  of  the  railways  were  permanently 
divorced  from  the  operating  administrations.  At  the 
end  of  1920  a  total  of  nearly  seven  millions  of  acres  of 
desert,  swamp  and  cut  over  timber  land  had  been 
irrigated,  drained  or  in  other  ways  prepared  for 
human  habitation  and  productive  use.     Homestead- 


GOVERNMENT  AND  THE  FARMER  47 

ing  has  been  greatly  encouraged  by  the  waiving  of 
royalties.  Water  power  has  been  more  efficiently 
used  and  plans  perfected  for  still  greater  utilization 
of  the  nation's  "white  coal"  under  private  administra- 
tion and  thru  the  employment  of  private  capital. 

It  is  realized  that  the  nation  has  as  yet  made  only 
the  beginning  of  progress  along  this  line  of  endeavor 
and  that  still  greater  achievements  lie  in  the  future. 
Cooperating  with  the  Federal  government  in  these  ef- 
forts are  many  of  our  public-spirited  private  associa- 
tions such  as  the  Chamber  of  Commerce  of  the  United 
States  as  well  as  the  official  departments  of  a  large 
number  of  the  states. 

9.  Importance  of  agriculture. — Agriculture  has  al- 
ways been  the  most  important  single  industry  in  the 
United  States,  totaling  in  value  of  product  for  the 
year  1919,  $14,092,740,000.  Under  normal  condi- 
tions a  bumper  crop  or  a  failure  reacts  upon  all  kinds 
of  business  and  for  this  reason  the  attitude  of  the  gov- 
ernment toward  agriculture  is  vital. 

The  assistance  given  to  the  farmers  by  the  state 
governments  in  the  last  fifty  years  is  a  concrete  illus- 
tration of  the  almost  limitless  possibilities  that  may 
follow  intelligent  action  systematically  carried  out 
for  the  benefit  of  industiy. 

The  manner  in  which  state  aid  has  been  given  to 
agriculture  is  somewhat  complicated,  as  the  work  may 
be  carried  on  either  jointly  or  separately  by  Federal, 
state  and  local  governments. 

10.  Fields  of  government  activities. — Government 


48  BUSINESS  AND  THE  GOVERNMENT 

activities  in  the  field  of  agriculture  may  be  divided 
into  three  groups :  ( 1 )  those  dealing  with  the  aliena- 
tion of  public  domains;  (2)  those  dealing  with  scien- 
tific production;  (3)  those  which  endeavor  to  solve 
the  social  and  economic  problems  which  have  come 
with  the  transition  from  a  self-sufficing  industry  to  a 
business  type  of  farming.  In  making  these  divisions, 
it  must  be  kept  in  mind  that  the  three  types  of  activity 
may  be  going  on  at  the  same  time,  and  do  not  neces- 
sarih"  represent  successive  stages. 

Not  only  has  the  Government  been  active  in  bring- 
ing the  land  and  the  farmer  together,  but  its  interest 
has  extended  to  the  cultivation  of  the  soil.  The 
former  feeble  and  unorganized  efforts  to  improve 
agriculture  gave  way  in  1862  to  a  definite,  systematic 
and  wide-spread  movement  that  came  as  a  response 
to  the  growing  demand  for  better  agricultural  con- 
ditions especially  in  the  older  states  which  found 
themselves  in  keen  competition  with  the  New  West 
whose  products  were  seeking  the  eastern  market 
made  accessible  by  the  extension  of  means  of  trans- 
portation. 

11.  Department  of  Agriculture. — In  1862  the  De- 
partment of  Agriculture  was  created.  Its  impor- 
tance and  possibilities  were  gradually  recognized  and 
some  years  later,  1889,  the  head  of  the  department  was 
raised  to  the  rank  of  a  cabinet  officer.  In  the  earlier 
period  attention  was  directed  almost  wholly  to  pro- 
duction. To  increase  the  quantity  and  quality  of 
farm  products   was   the   immediate   problem   to   be 


GOVERNMENT  AND  THE  FARMER  49 

solved,  and  various  bureaus  were  created  to  attain 
this  end. 

The  Bureau  of  Animal  Industry  was  established  to 
handle  problems  of  eveiy  kind  relative  to  live  stock. 
This  bureau  has  performed  very  effective  work  in 
investigating  diseases  among  cattle,  in  making  in- 
spections of  dressed  meat  and  in  furnishing  valuable 
information  of  various  kinds,  the  introduction,  the 
breeding  and  care  of  animals  that  may  prove  indus- 
trially valuable.  The  Bureau  of  Plant  Industry  per- 
forms a  somewhat  similar  service  in  plant  produc- 
tion. Its  work  has  been  especially  valuable  in  check- 
ing plant  diseases  and  in  introducing  many  previously 
unknown  fruits  and  vegetables  to  the  United  States. 

12.  Agricultural  colleges. — The  passage  of  the 
Morrill  Act  in  1862  made  possible  the  creation  of 
agricultural  and  technical  colleges  by  providing  for 
an  amount  of  land  to  be  apportioned  to  each  state 
equal  to  30,000  acres  for  each  Senator  and  Repre- 
sentative in  Congress  under  the  census  of  1860. 
This  endowment  was  further  increased  in  1890  by 
an  annual  cash  payment  of  $25,000  to  be  applied  for 
instructional  purposes.  While  considerable  attention 
was  given  in  these  colleges  to  the  application  of  science 
to  agricultural  production,  one  of  the  most  important 
functions  of  the  college  was  to  give  practical  instruc- 
tion. In  the  main  the  methods  of  farming  that  pre- 
vailed were  those  inlierited  from  former  generations, 
in  many  cases  applied  under  totally  different  condi- 
tions.    The  purpose  of  agricultural  education  was 


50  BUSINESS  AND  THE  GOVERNMENT 

twofold:  one,  to  afford  a  type  of  instruction  having 
educational  and  cultural  value;  the  other  to  familar- 
ize  young  men  and  young  women  with  the  basic 
sciences  and  scientific  methods  of  farming.  The  col- 
leges have  more  than  met  these  expectations.  By 
adapting  courses  to  meet  the  needs  of  the  students, 
by  instituting  short  courses  during  the  winter  for  those 
unable  to  attend  for  a  longer  period,  and  by  adding 
the  regular  college  courses  they  have  developed  a  very 
much  higher  type  of  farmer,  not  alone  in  respect  to 
his  methods  of  tilling  the  soil,  but  in  his  general  man- 
ner of  living. 

13.  Hatch  Act  ecvperiment  stations. — As  the  im- 
portance of  scientific  farming  became  more  apparent, 
greater  interest  was  manifest  in  extending  investiga- 
tions to  every  branch  of  this  industry.  To  meet  this 
need  the  Hatch  Act  was  passed  in  1887  which  estab- 
lished experiment  stations  in  connection  with  the  ag- 
ricultural colleges.  Congress  appropriated  $15,000 
annually  for  each  station,  which  amount  was  later  in- 
creased to  $30,000  by  the  Adams  Act  of  1906.  The 
object  of  the  experiment  stations  is  given  in  the  en- 
abling act  as  follows : 

That  it  shall  be  the  object  and  duty  of  said  experiment 
stations  to  conduct  original  researches  or  verify  experiments 
on  the  physiology  of  plants  and  animals ;  the  diseases  to 
which  they  are  severally  subject,  with  the  remedies  for  the 
same ;  the  chemical  compositions  of  useful  plants  at  their 
different  stages  of  growth;  the  comparative  advantages  of 
rotative  cropping  as  pursued  under  the  varying  series  of 
crops ;  the  capacity  of  new  plants  or  trees  for  acclimation ; 


GOVERNMENT  AND  THE  FARMER  51 

the  analysis  of  soils  and  water ;  the  chemical  composition  of 
manures,  natural  or  artificial,  witli  experiments  designed  to 
test  the  comparative  effects  on  crops  of  different  kinds ;  the 
adaptation  and  value  of  grasses  and  forage  plants ;  the  com- 
position and  digestibility  of  the  different  kinds  of  food  for 
domestic  animals ;  the  scientific  and  economic  questions  in- 
volved in  the  production  of  butter  and  cheese ;  and  such 
other  researches  or  experiments  bearing  directly  on  the  agri- 
cultural industry  of  the  United  States  as  may  in  each  case 
be  deemed  advisable,  having  due  regard  to  the  varying  con- 
ditions and  needs  of  the  respective  states  and  territories. 

14.  Farm  management. — Agriculture  required  the 
same  careful  management  necessary  in  other  indus- 
tries, but  there  were  no  data  which  could  be  used.  To 
secure  information  that  would  enable  the  farmer  to 
conduct  his  business  as  other  business  men  do,  the  gov- 
ernment created  the  division  of  Farm  Management. 
The  division  has  carried  on  experiments  covering  a 
period  of  years  to  determine  the  best  methods  of 
farming.  It  has  also  tried  to  secure  the  desired  in- 
formation from  successful  farmers  who  typified  all 
conditions  and  combinations  of  farming.  Sun'^eys 
have  been  made  covering  certain  areas,  and  results 
show  how  much  the  farmer  has  realized  on  the  year's 
operations;  the  size  of  the  unit;  the  amount  of  live 
stock  and  kinds  of  crops  and  the  general  type  of 
farming  conducted.  From  these  data  covering  a 
large  number  of  farms  conclusions  are  drawn  which 
determine  the  proper  method  of  farming  under  given 
conditions.  A  second  and  third  survey  is  usually 
made  to  verify  these  deductions.  As  a  result  it  has 
been  possible  to  work  out  general  principles  that  will 


52  BUSINESS  AND  THE  GOVERNMENT 

guiC  3  the  individual  farmer  in  determining  what  kind 
of  farming  he  should  engage  in,  the  amount  of  land 
necessary  for  the  most  efficient  unit,  and  also  the 
amount  of  capital  required  in  the  form  of  live  stock, 
machinery  and  equipment. 

15.  Institute  work:  Smith-Lever  Bill. — It  has  been 
the  policy  of  the  agricultural  colleges  to  carry  on 
institute  work.  The  great  possibilities  for  good  that 
might  come  from  carrying  the  results  of  the  work 
of  the  colleges  and  experiment  stations  to  the  farm- 
ers themselves  led,  in  1914,  to  the  passage  of  the 
Smith-Lever  Bill.  The  purpose  of  the  law  is  to  dif- 
fuse among  the  people  useful  infomiation  relative  to 
agriculture  and  home  economics.  To  finance  this  co- 
operative extension  work  Congress  set  aside  $480,000 
from  which  a  sum  of  $10,000  is  to  be  paid  to  each 
state  that  will  appropriate  an  equal  amount;  either 
state,  county  or  agricultural  college  funds  to  be  ex- 
pended in  cariying  on  the  extension  work  in  that  state. 
This  sum  of  $480,000  is  to  be  increased  each  year  for 
seven  years  to  a  total  of  $4,580,000  yearly  appropria- 
tion. 

16.  Eocte7ision  teaching. — In  planning  the  work  of 
extension  teaching,  the  widest  interpretation  is  given 
the  words  Agriculture  and  Home  Economics.  These 
terms  include  all  problems  pertaining  to  the  welfare 
of  agriculturalists  either  in  the  home  or  in  the  field. 
A  trained  force  of  teachers  selected  especially  for 
this  type  of  work  are  conducting  lecture  and  demon- 
stration  tours    over   the    states    all   the  time.     The 


GOVERNMENT  AND  THE  FARMER  53 

demands  for  their  visits  are  still  greatly  in  excess  of 
their  ability  to  meet  them.  The  farmers  gather  in 
great  numbers  and  are  eager  to  learn  better  methods. 
The  housewives  are  taught  better  ways  of  preparing 
food.  One  lecturer  may  devote  his  entire  time 
demonstrating  a  cheap  and  efficient  method  of  fur- 
nishing running  water  in  every  household,  which  will 
greatly  lessen  the  burden  of  the  housewife. 

The  extension  work  has  expanded  to  include  rural 
engineering,  dealing  with  2)i'oblems  of  power  on  the 
farm,  proper  sanitary  equipment,  rural  architecture 
applied  to  houses  and  barns  and  economic  and  so- 
cial problems,  such  as  marketing,  rural  credit,  rural 
organization  and  the  socializing  activities  of  a  rural 
community. 

17.  County  agents. — Still  another  method  of  help- 
ing the  farmer  in  a  practical  way  is  thru  the  county 
agent,  who  advises  the  farmer  on  all  methods  per- 
taining to  the  conduct  of  his  business  along  lines 
approved  by  the  best  authorities.  These  agents  may 
be  college  professors  or  successful  farmers.  It  is  not 
an  easy  task  to  persuade  the  average  farmer  to  aban- 
don his  inherited  method  of  farming  for  some  book 
theory.  Most  of  the  agents  have  brouglit  about  the 
desired  changes,  not  by  insistence,  but  by  the  patient, 
tactful,  persistent  pressure  of  illustration  and  exam- 
ple. It  is  the  duty  of  the  expert  to  advise  on  matters 
of  health  of  stock,  of  the  policy  to  pursue  on  farm 
crops,  of  farm  management  and  a  mass  of  details  con- 
nected with  the  particular  types  of  farm  enterprise 


54  BUSINESS  AND  THE  GOVERNMENT 

found  in  the  farmer's  count3\  The  agent  is  especially 
helpful  in  arranging  for  extension  work  and  in  en- 
couraging boys'  and  girls'  clubs  and  school  fairs. 
The  gap  between  the  college  and  the  farmer  is  thus 
bridged  by  the  man  who  is  trained  in  the  college  and 
who  brings  that  training  directly  to  the  farmer.  He 
is  not  content  with  telling  the  farmer  how,  but  shows 
him  how  and  helps  him  until  he  masters  the  art  of 
improved  agi'iculture. 

18.  Marketing  problem. — Within  the  last  few 
years  the  task  of  marketing  farm  products  economi- 
cally has  become  increasingly  difficult  and  is  now  con- 
sidered one  of  the  most  serious  questions  in  agri- 
culture. The  gains  that  have  been  made  thru  im- 
proved methods  are  lost  to  the  farmer  because  of 
poor  and  inadequate  methods  of  marketing.  With 
a  view  to  improving  methods,  a  division  of  market- 
ing was  formed  in  the  Department  of  Agriculture  in 
the  spring  of  1913. 

The  first  work  to  be  undertaken  was  the  establishing 
of  standard  grades.  With  the  exception  of  agricul- 
tural  products  almost  every  article  which  is  bought 
and  sold  conforms  to  some  standard.  In  agriculture 
only  a  few  things  such  as  wheat  and  other  grains 
have  been  standardized. 

Studies  have  also  been  made  of  supply  and  demand 
for  certain  products  at  given  points.  During  the 
shipping  season  a  force  of  reporters  work  in  the  more 
important  market  centers  of  the  country  in  an  effort 
to  divert  shipments  to  points  of  greatest  demand. 


GOVERNMENT  AND  THE  FARMER  55 

Transportation  and  storage  problems  have  been  care- 
fully studied  in  an  effort  to  avoid  seasonal  fluctua- 
tions of  perishable  commodities  and  to  furnish  a  more 
even  supply.  The  department  has  carried  on  experi- 
ments in  marketing  by  parcel  post  and  express  in 
an  effort  to  bring  producer  and  consumer  closer  to- 
ffether.  It  has  determined  the  zones  within  which 
marketing  is  profitable,  the  kinds  of  produce  to  ship 
and  how  to  prepare  them.  Extensive  investigations 
have  been  made  in  the  systems  of  marketing  dairy 
products,  live  stock,  and  animal  by-products  for  the 
purpose  of  suggesting  ways  and  means  by  which 
they  may  be  improved  and  the  cost  reduced.  Since 
a  large  percentage  of  the  expense  and  waste  in  the 
distribution  of  food  products  occurs  in  the  retail 
markets,  the  work  includes  also  an  investigation  of  all 
commercial  methods  of  distributing  and  marketing 
food  products  in  the  cities. 

19.  Federal  Farm-Loan  Act. — The  providing  of 
proper  capital  for  farming  enterprises  has  been  for  a 
long  time  a  difficult  question  for  the  farmer  to  solve. 
In  the  past  credit  facilities  have  existed  primarily  for 
commercial  enterprises  and  loans  have  been  granted 
to  undertakings  in  which  the  capital  was  ordinarily 
released  within  a  comparatively  short  time.  Agricul- 
ture, on  the  other  hand,  requires  a  long  time  before 
capital  expended  gives  any  sure  return.  In  order 
that  the  farmer  might  obtain  capital  just  as  easily  and 
as  freely  as  the  man  in  any  other  industry  the  Fed- 
eral Farm-Loan  Act  was  passed  by  Congress  in  1916. 


56  BUSINESS  AND  THE  GOVERNMENT 

The  general  purposes  of  the  Act  are  set  forth  as 
follows:  "(l)  to  lower  and  to  equalize  interest  rates 
on  first-mortgage  farm  loans;  (2)  to  provide  long- 
term  loans  with  the  privilege  of  repayment  in  instal- 
ments thru  a  long  or  short  period  of  years,  at  the 
borrower's  option;  (3)  to  assemble  the  farm  credits 
of  the  nation,  to  be  used  as  security  for  money  to  be 
employed  in  farm  development ;  ( 4 )  to  stimulate  co- 
operative action  among  farmers;  (5)  to  check  land 
monopoly  by  making  it  easier  for  tenants  to  get  land ; 
(6)  and  to  provide  safe  and  sound  long-term  invest- 
ment for  the  thrifty." 

The  Act  constitutes  a  Federal  Loan  Board,  consist- 
ing of  four  members  and  the  Secretary  of  the  Treas- 
ury as  chairman,  which  exercises  supervision  over  the 
entire  system,  and  authorizes  the  establishment  of  two 
distinct  kinds  of  farm  loan  banks.  There  are,  first, 
twelve  Federal  Land  Banks  in  which  the  government 
is  a  stockholder,  and  second,  an  unlimited  number  of 
Joint-Stock  Land  Banks.  The  number  of  banks  of 
this  latter  type  grew  from  nine  in  1918  to  thirty  in 
1919  and  as  the  close  of  the  fiscal  year  1920  ap- 
proached it  was  stated  that  the  rate  of  increase  had 
been  commensurate  with  the  carrying  of  the  objects 
of  the  act,  altho  no  statement  of  the  actual  number  of 
banks  was  available.  The  growth  of  the  system  is 
shown  by  an  increase  of  $15,356,785  in  the  business  of 
the  Federal  Land  Banks  and  of  $46,836,487  in  the 
joint-stock  banks  in  1919  and  the  indication  by  un- 
official figures  obtained  about  a  month  before  the  end 


GOVERNMENT  AND  THE  FARMER  57 

of  the  fiscal  year  that  there  had  been  equally  satisfac- 
tory operation  in  1920. 

National  farm  loan  associations  are  the  local  organ- 
izations upon  which  the  Federal  farm  loan  system  is 
based,  in  so  far  as  the  operations  of  the  Federal  land 
banks  are  concerned.  There  are  now  about  3900  as- 
sociations in  existence  and  they  have  an  average  mem- 
bership in  the  vicinity  of  thirty.  Together  the  mem- 
bers must  apply  for  loans  aggregating  $20,000  or 
more.  Five  per  cent  of  each  loan  shall  be  subscribed 
and  paid  for  capital  stock  in  the  association,  and  the 
association  in  turn  shall  subscribe  for  an  equal  sum  in 
the  Federal  land  bank  in  its  district.  When  the  stock 
subscriptions  of  the  associations  reach  $100,000  in  any 
one  bank  the  control  of  that  bank  passes  from  the 
five  directors  temporarily  appointed  by  the  Federal 
Farm  Loan  board  to  a  new  board  of  nine  directors, 
each  holding  office  for  three  years.  Six  of  these  are 
elected  by  the  National  Farm  Loan  Association  which 
therefore  has  control.  The  other  three  are  appointed 
by  the  Federal  Farm  Loan  Board. 

The  joint-stock  land  banks  were  authorized  for 
carrying  on  the  l)usiness  of  lending  on  farm  mortgage 
security  and  of  issuing  farm  loan  bonds  and  are  con- 
trolled entirely  by  officers  and  directors  chosen  by  their 
stockholders.  Like  the  Federal  I-.and  Bank  each  is 
empowered  to  appraise  land  and  accept  and  indorse 
mortgages  for  its  stockholders ;  receive  and  deliver  the 
proceeds  of  loans  to  its  borrowers ;  acquire  and  dispose 
of  property  necessary  for  the  conduct  of  its  business ; 


58  BUSINESS  AND  THE  GOVERNMENT 

issue  certificates  of  deposit  at  4%  for  terms  up  to  one 
year  which  may  be  invested  in  farm-loan  bonds ;  and 
receive  and  transmit  to  the  Federal  land  bank,  pay- 
ment of  interest,  principal,  etc. 

Loans  can  be  made  by  the  association  on  first  mort- 
gages of  land  within  its  district,  for  5  to  40  years. 
The  interest  rate  shall  be  fixed  at  one  per  cent  above 
the  rate  borne  by  bonds  for  which  the  mortgages  shall 
be  exchanged.  The  range  of  loans  to  any  one  shall 
be  from  $100  to  $10,000  and  no  loan  shall  exceed 
50%  of  the  land  value,  plus  20%  of  the  value  of 
improvements,  which  shall  be  duly  insured.  Loans 
must,  under  penalty,  be  used  to  purchase  farms, 
equipment,  live  stock,  to  erect  buildings,  or  to  clear 
the  farm  of  encumbrances  provided  the  applicant  is  a 
member  of  the  first  association  organized  in  the  coun- 
try. Finally,  no  loan  shall  be  made  except  to  a 
farmer  or  person  about  to  become  a  farmer. 

The  shares  of  stock  ($5)  are  assessable  for  ex- 
penses, carry  double  liability  and  may  be  held  only 
by  borrowers.  Surplus  and  dividends  will  be  devel- 
oped from  the  %  of  one  per  cent  commission  allowed 
the  association  out  of  semi-annual  interest  payments. 
The  capital,  surplus,  bonds  and  mortgages  are  exempt 
from  all  taxation.  During  the  last  quarter  of  1920 
the  lending  operations  of  the  whole  Federal  farm  loan 
system  were  suspended  owing  to  litigation  pending 
before  the  Supreme  Court.  The  purpose  of  this  liti- 
gation was  to  test  the  validity  of  the  tax  exemption 
provisions  applied  by  the  Federal  Farm  Loan  Act  of 


GOVERNMENT  AND  THE  FARMER  59 

1916  to  farm  loan  bonds  from  which  the  loanable 
funds  of  the  system  are  derived.  This  suit  was  re- 
argued in  October,  1920,  but  no  decision  had  been 
promulgated  up  to  the  time  of  the  final  revision  of  this 
volume. 

20.  Improvement  in  rural  conditions. — Xot  con- 
tent with  giving  help  in  business  and  financial  matters, 
the  Government  has  created  a  division  of  rural  organi- 
zation, the  work  of  which  is  to  create  better  social, 
educational  and  religious  conditions  in  rural  commu- 
nities. The  desire  to  leave  the  country  and  move  to 
the  towns  and  cities  is  very  strong  in  a  large  part  of 
the  farming  population.  The  main  reasons  given  for 
abandoning  the  farm  are  the  absence  of  attractions  in 
the  country,  poor  schools,  bad  roads  and  hard  work 
for  men  and  women.  Efforts  are  now  made  thru 
existing  agencies  to  enrich  the  social  life  of  country 
districts  by  organizing  societies  to  stage  plays,  ar- 
range debates  and  to  provide  for  social  gatherings 
which  shall  break  down  the  isolation  and  distrust  so 
prevalent  in  the  country.  Labor  saving  devices  are 
being  demonstrated  for  use  on  the  farms.  The  work 
of  the  government  rural  engineers  is  directed  toward 
the  improvement  of  country  roads.  Experts  are 
drafting  systems  of  education  that  will  meet  the  needs 
of  the  agricultural  population  and  the  state  colleges 
are  holding  special  sessions  for  country  ministers  to 
give  them  some  of  the  gospel  of  rural  economy  and  to 
make  them  leaders  in  the  economic,  social  and  reli- 
gious life  of  their  respective  comnmnities. 


60  BUSINESS  AND  THE  GOVERNMENT 

REVIEW 

Why  did  it  become  necessary  in  the  United  States  for  the 
Federal  Government  to  take  positive  action  regarding  the  con- 
servation of  natural  resources? 

What  steps  were  taken  in  that  direction  by  President  Roose- 
velt? 

To  what  extent  should  our  natural  resources  now  conserved  in 
our  forest  and  land  reservations  be  opened  to  private  individuals 
for  exploitation  and  use? 

Under  what  conditions  should  private  individuals  be  permitted 
to  make  use  of  these  natural  resources  ? 

Agriculture  is  frequently  spoken  of  as  the  most  important  indus- 
try. From  your  study  of  economics  what  reasons  are  there,  if 
any,  for  considering  it  more  important  than  manufacturing,  or 
transportation,  except  the  number  of  persons  engaged  and  the 
investment  ? 

What  are  the  main  provisions  of  the  Morrill  Act  and  in  what 
ways  has  this  Act  been  conducive  to  the  development  of  agricul- 
ture and  to  military  training? 

Does  the  work  of  the  extension  teachers  and  the  county  agents 
have  any  effect  toward  pauijerizing  the  farmers  as  a  special  class  ? 

Outline  briefly  the  main  provisions  of  the  Farm-Loan  Act. 


CHAPTER  IV 

GOVERNMENT  ENCOURAGEMENT  OF 
INDUSTRIES  AND  COMMERCE 

1.  Government  methods  of  encouragement. — Aside 
from  the  measures  mentioned  in  the  preceding  chapter 
to  promote  agriculture  and  industry  and  the  special 
legislation  February  23,  1917,  establishing  the  Fed- 
eral Board  for  Vocational  Education,  the  National 
Government  has  done  little  to  promote  directly  indus- 
\.YY  and  commerce,  save  thru  the  temporary  sugar  beet 
bounties.  Indirectly,  the  Departments  of  State  and 
of  Commerce  thru  their  valuable  reports  and  the  ac- 
tive support  of  their  officials  in  foreign  countries  have 
given  valuable  assistance  to  our  business  men  in  the 
development  of  our  trade  abroad  as  was  fully  devel- 
oped in  Volume  15  on  Foreign  Trade  and  Shipping. 
In  jDromoting  home  industries  the  tariff  has  been  the 
method  that  has  been  chiefly  in  the  public  mind.  It 
has  naturally  been  the  subject  of  heated  political 
debates. 

2.  Tariff  and  politics. — The  fact  that  the  tariff  has 
been  likewise  one  of  the  chief  sources  of  revenue  has 
only  tended  to  confuse  the  issue  and  at  times  to  em- 
bitter the  controversy.  As  long  as  special  classes  of 
the  population  would  seem  to  benefit  directly  from 

XXIV— 6  61 


62  BUSINESS  AND  THE  GOVERNMENT 

the  tariff,  others  would  surely  oppose  whether  wisely 
or  unwisely.  Wherever  the  protective  tariff  exists, 
however  firmly  fixed  in  the  policy  of  the  country,  such 
contests  are  sure  to  arise.  In  free  trade  countries 
there  are  always  industries  wishing  protection,  so  that 
the  subject  is  one  of  perennial  and  universal  interest 
and  importance. 

3.  Tariff  systems. — It  will  serve  to  clarify  the  dis- 
cussion if  we  note  at  the  beginning  the  three  systems 
commonly  recognized. 

(a)  The  single  tariff.  Under  this  system  only  one 
schedule  of  duties  is  imposed,  no  discriminations 
being  made  among  countries.  In  exceptional  cases 
like  China  there  may  be  only  one  rate  for  all  imported 
articles,  the  country  having  bound  itself  by  treaty. 
Before  China  was  accustomed  to  foreign  trade  she 
agreed  with  foreign  nations  to  levy  a  duty  of  onlj^  five 
per  cent  ad  valorem.  These  were  then  converted  into 
specific  duties.  With  the  rise  of  prices,  the  yield  fell 
to  less  than  three  per  cent.  After  China  entered  the 
war  an  international  commission  was  set  at  work  to 
bring  the  rates  to  an  effective  five  per  cent. 

The  rule  is  of  course  a  multiplicity  of  rates.  The 
United  States  with  a  great  variety  of  duties,  many  of 
them  at  very  high  rates,  nevertheless  retained  the 
single  tariff  until  the  year  1909. 

(b)  The  general  and  conventional  system.  Many 
important  countries  have  made  concessions  to  certain 
others  in  their  commercial  treaties.  Thru  the  appli- 
cation of  a  "most  favored  nation"  clause,  lower  rates 


INDUSTRIES  AND  COMMERCE  63 

than  those  agreed  upon  in  general  schedules  are  given 
to  certain  countries.  Other  countries  outside  this 
group  pay  the  rates  named  in  the  general  schedule. 
Germany  applied  this  system  from  the  year  1891  till 
the  outbreak  of  the  war. 

(c)  The  maximum  and  minimum  system.  This 
consists  of  two  schedules  like  the  general  and  conven- 
tional system.  The  maximum  tariff  corresponds  to 
the  general  tariff,  the  minimum  to  the  conventional 
one.  The  difference  lies  mainly  in  the  minimum 
schedule,  and  the  authority  by  which  it  is  applied. 
The  minimum  schedule  is  composed  of  a  fixed  list  of 
rates  of  duty  determined  by  law,  not  by  the  treaty- 
making  power.  In  negotiations  with  other  countries 
the  executives,  in  making  a  commercial  treaty,  may 
not  go  below  this  minimum  schedule,  but  they  may 
apply  that  to  countries  entitled  to  "most  favored 
nation"  treatment.  This  system  was  adopted  by 
France  in  1892,  and  from  1909  to  1913  with  some 
modifications  by  the  United  States. 

4.  Mercantilists  and  the  theory  of  jirotection. — The 
origin  of  the  theory  of  protection  is  to  be  found  as 
early  as  the  sixteenth  century  when  England  and  the 
other  countries  of  Europe  were  each  endeavoring  to 
secure  a  favorable  balance  of  trade.  This  economic 
policy  centers  around  what  is  known  as  the  mercantile 
theory,  under  which  it  was  considered  that  it  was 
highly  important  to  possess  and  keep  within  the  coun- 
try a  large  amount  of  the  precious  metals;  that  for- 
eign trade  ^  was   of  more   value   to   a   country   than 


m  BUSINESS  AND  THE  GOVERNMENT 

domestic  trade;  that  the  manufacturing  industries 
were  of  more  importance  than  the  extractive  ones,  and 
that  a  dense  population  is  an  element  of  strength  to  a 
country.  It  was  believed  further  that  manufacturers 
make  possible  a  dense  population,  lead  to  an  export 
trade  of  large  value,  and  offer  unlimited  opportuni- 
ties for  business  enterprise.  In  order  to  further  this 
policy,  the  mercantilists  ( as  statesmen,  merchants  and 
other  believers  in  this  theory  were  called)  considered 
state  action  in  the  form  of  protective  duties,  bounties, 
restrictions  or  other  artificial  aid  necessary  for  the 
development  of  manufacture  and  trade. 

5.  Alexander  Hamilton  s  views. — Alexander  Ham- 
ilton was  the  originator  of  the  protective  tariff  system 
in  the  United  States.  In  no  case,  perhaps,  do  we  find 
a  better  illustration  of  the  political  influences  that 
often  enter  into  an  economic  question  than  in  this  one. 
Hamilton,  as  we  see  from  his  celebrated  reports  on 
public  credit  and  on  a  national  bank,  was  too  clear- 
headed to  accept  in  full  the  doctrine  of  the  mercantil- 
ists as  it  applied  to  money.  In  his  report  on  manu- 
facturers, presented  to  Congress  in  1791,  he  noted  the 
difficulty  that  an  industry  has  in  meeting  competition 
from  abroad,  especially  if  foreign  competitors  have  an 
advantage  in  previous  possession  of  the  ground  or  aid 
from  their  government.  In  another  part  of  the  re- 
port, he  definitely  recommended  the  grant  of  bounties, 
free  admission  of  raw  materials,  and  general  protec- 
tion to  manufacturers  within  the  country. 

In  his  arguments,  however,  he  had  chiefly  in  mind 


INDUSTRIES  AND  COMMERCE  65 

the  political  policy  of  strengthening  the  central  gov- 
ernment by  bringing  to  its  support  the  great  business 
interests.  Probably,  therefore,  the  main  reason  which 
led  to  his  recommendation  was  political.  In  common 
with  Washington,  he  considered  it  of  the  utmost  im- 
portance that  the  central  government  be  firmly  estab- 
lished. The  debates  in  the  Constitutional  Convention 
had  shown  clearly  the  reluctance  of  very  many  citizens 
to  yield  any  of  the  sovereignty  of  the  separate  states 
to  the  central  government.  To  give  the  nation  the 
standing  that  he  knew  to  be  essential  in  order  to  secure 
proper  respect  abroad  and  to  establish  it  on  a  sound 
foundation  for  future  growth,  it  was  desirable  to  win 
to  its  support  the  intelligent  business  interests  of  the 
country.  The  adoption  of  the  protective  system 
would  immediately  rally  to  the  nation's  support 
those  who  would  benefit  by  such  a  tariff  and  these 
would  normally  include  a  large  proportion  of  the  men 
desired. 

6.  Conflicting  economic  interests. — In  later  discus- 
sions thruout  our  history  the  direct  business  interests 
of  the  various  parties  likely  to  be  affected  by  the  tariff 
are  always  seen.  With  the  single  exception  of  the 
slavery  question,  the  tariff  more  than  any  other  has 
tended  to  divide  the  country  on  sectional  lines.  The 
southern  states  until  after  the  Civil  War  were  almost 
entirely  agricultural,  producing  ])rincipally  cotton  for 
export  or  for  shipment  to  the  North,  As  there  was 
practically  no  import  of  cotton  and  other  goods  that 
would  come  into  competition  with  their  products,  they 


66  BUSINESS  AND  THE  GOVERNMENT 

needed  no  protection.  Any  tariff  would  tend  toward 
increasing  prices  of  the  articles  they  consumed  with- 
out having  any  effect  toward  raising  the  price  of  the 
goods  that  they  produced.  Therefore,  they  were  free 
traders.  In  the  Xorth,  manufactures  were  rapidly 
developing,  even  the  manufacture  of  cotton.  These 
manufactured  goods  were  subject  to  competition  from 
Europe,  and  the  new  industries  had  to  overcome  both 
the  difficult  conditions  of  building  up  new  industries 
with  small  capital  and  of  doing  this  in  the  face  of 
vigorous  competition.  The  Xorth,  therefore,  desired 
protection. 

The  division  is  not  one  between  agriculture  and 
manufacture,  as  is  often  assumed,  but  between  articles 
not  subject  to  competition  and  those  in  competition. 

Farmers  demand  protection  where  they  must  meet 
competition.  The  Corn  Laws  in  Great  Britain  were 
not  abolished  by  the  will  of  the  farmers,  but  against 
the  farmers'  wish  by  the  influence  of  the  great  manu- 
facturers in  ^Manchester,  Birmingham  and  Leeds.  It 
should  be  remembered  that  Cobden  and  Bright,  with 
all  their  patriotic  eloquence,  were  cotton  manufac- 
turers representing  manufacturing  districts.  In 
Germany  the  farmers  have  been  protected  against  the 
competition  of  America  by  protective  duties,  and  the 
German  agitation  against  the  importation  of  pork 
from  America  had  economic  protection  as  well  as 
defense  against  trichinae  as  an  impelling  motive. 

Pohtical  principles  are  often  born  of  economic 
advantage.     The  sincerity  or  the  patriotism  of  those 


INDUSTRIES  AND  COMMERCE  67 

who  advocate  measures  which  tend  to  their  business 
advantage^  is  not  questioned  in  the  least;  but  human 
intelligence  is  limited,  the  range  of  most  men's  ex- 
perience and  political  vision  is  narrow;  a  man  natur- 
ally sees  his  own  interests  more  clearly  than  those 
of  his  neighbor.  It  is  but  natural  for  him  to  assume 
that  what  benefits  him  will  benefit  the  community 
at  large.  Usually  it  is  only  those  without  direct 
economic  interest  in  a  public  question  who  see  that 
question  in  all  its  bearings.  Such  men  are  few.  It 
is  therefore  desirable  that  in  our  legislative  bodies, 
members  standing  for  all  interests  be  present  so  that 
the  opinions  represented  will  be  approximately  those 
of  the  entire  nation. 

No  system  is  all  right  or  all  ^\Tong;  there  is  a 
middle  course.  It  will  suffice  to  present  a  few  fun- 
damental principles  generally  accepted  by  the  im- 
partial authorities  who  have  no  interest  in  partisan 
controversy. 

7.  Classification  of  products. — For  the  considera- 
tion of  the  tariff  it  is  well  to  divide  the  goods  produced 
in  any  country  into  three  classes :  (a)  Goods  produced 
to  better  advantage  in  the  home  country  than  in  any 
foreign  countiy.  Such  goods,  it  is  evident,  need  no 
tariff  for  protection,  nor  would  a  duty  levied  upon 
them  yield  a  revenue  of  importance.  Only  when 
some  foreign  territory  is  so  situated  that  it  cannot  find 
another  market  for  such  goods  will  they  be  sent  into 
this  country,  and  such  cases  are  very  rare.  A  tariff 
levied  on  such  goods  is  usually  purely  political,  in- 


68  BUSINESS  AND  THE  GOVERNMENT 

tended  to  afford  them  protection  when  none  is  needed. 

(b)  Goods  pix)duced  in  the  home  country  only 
under  conditions  permanently  unprofitable.  As  yet 
it  has  not  been  found  practicable  to  produce  com- 
mercially, tea,  coffee,  cinchona  bark  or  rubber  in  this 
country.  A  duty  levied  on  such  goods,  therefore, 
would  have  practically  no  influence  toward  building 
up  an  industry.  It  would  be  a  duty  that  would  yield 
a  large  revenue  provided  the  articles  such  as  those 
mentioned  were  practically  necessities.  Goods  of  this 
typ'e  make  the  best  basis  for  a  revenue  tariff. 

(c)  Goods  adapted  to  production  in  this  country 
but  also  produced  as  cheaply  or  possibly  more  cheaply 
for  a  time  at  least,  in  foreign  countries.  Import 
duties  levied  on  goods  of  this  type  will  produce  a 
revenue  unless  the  rate  is  so  high  as  to  prevent  impor- 
tations entirely,  and  they  will  also  furnish  protection 
to  the  industries  established  l>ere,  inasmuch  as  they 
tend  strongly  to  check  importations  and  thereby  lessen 
competition.  All  discussions  on  the  tariff,  therefore, 
center  upon  this  third  class  of  industries.  jNlost  of  the 
leading  arguments  on  both  sides  have  a  certain  degree 
of  validit3^  The  policy  to  be  adopted  by  any  country 
is  not  simply  for  or  against  protection.  It  is  multi- 
form, the  validity  of  the  argimients  varying  with  every 
schedule,  with  almost  every  article  considered.  No 
two  different  articles  are  produced  under  exactly  the 
same  competitive  conditions.  To  attain  the  ideal  sys- 
tem therefore,  each  article  w^ould  need  a  separate 
treatment.     As  a  matter  of  practical  legislation,  how- 


INDUSTRIES  AND  COMMERCE  69 

ever,  only  an  approximation  to  the  ideal  can  at  the 
best  be  secured  and  schedules  must  be  constructed, 
therefore,  for  great  groups  of  articles  more  or  less 
similarly  situated. 

8.  Infant  industries. — In  the  early  days  of  manu- 
facture in  this  country  a  favorite  argument  was  that 
infant  industries  should  be  protected.  In  the  begin- 
ning of  an  industry  there  are  large  expenses  in  ob- 
taining capital,  the  training  of  the  labor  force,  the 
securing  of  a  market,  the  building  up  of  good-will  and 
other  like  difficulties.  JNIen  argued  that  an  industry 
should  receive  support  by  checking  foreign  competi- 
tion for  a  time,  and  that  when  the  infant  grew  up 
the  protective  hand  might  be  removed.  The  oppo- 
nents, of  course,  called  attention  to  the  fact  that  the 
protected  industries  were  never  ready  to  surrender 
the  tariff. 

How  high  should  such  a  tariff  be?  How  long 
should  it  be  continued  ?  In  what  way  should  it  be  re- 
moved ?  Clearly  the  same  rate  would  not  apply  in  all 
industries.  The  rate  should  be  high  enough  to  over- 
come the  advantages  of  the  foreign  competitor  or 
the  principle  of  protection  would  not  apply.  But  a 
tariff  high  enough  to  divert  capital  from  investment 
in  old  established  industries  into  one  new  and  untried 
must  insure  profits  from  the  beginning.  Under  these 
circumstances  it  is  certain  that  some  establishments 
will  be  built  in  the  most  advantageous  places;  others 
will  be  set  up  where  conditions  are  less  favorable  and 
sometimes  they  will  have  less  skilled  management. 


70  BUSINESS  AND  THE  GOVERNMENT 

In  these  circumstances  even  after  the  difficulties  of  the 
beginning  have  been  overcome  there  will  still  be  estab- 
lishments with  little  or  no  profit,  even  tho  those  best 
situated  are  reaping  high  profits.  The  demand  for 
the  lowering  of  the  tariff,  therefore,  is  bound  to  be 
vigorously  opposed  and  the  cry  that  its  removal  will 
close  factories,  throw  men  out  of  employment,  cause 
suffering,  is  jDcrfectly  true.  Herein  lies  the  difficulty 
under  our  system  of  legislation.  Doubtless  the  diffi- 
culties of  establishing  a  new  industry  are  such  that  a 
country  might  well  pay  higher  prices  for  a  time  to 
secure  later  the  benefit  of  a  self-sustaining  industry 
that  would  need  no  further  help.  Cities  often  gladly 
pay  a  bonus  to  secure  a  new  industry.  But,  with 
our  system  of  passing  tariff  laws,  it  is  often  difficult 
to  withdraw  the  aid. 

9.  Who  bears  the  burden  of  the  tariff? — Some  ex- 
tremists have  asserted  that  the  tariff  is  a  tax  which 
the  consumer  pays.  This  is  true  for  goods  not  pro- 
duced in  this  countiy ;  the  tariff  tax  is  regularly  added 
to  the  regular  price  of  the  goods.  It  is  generally  not 
true  to  the  full  extent  in  other  cases.  Extremists 
on  the  other  side  assert  that  the  tariff  is  a  premium 
paid  by  the  foreign  producer  for  the  privilege  of 
selling  in  this  country.  This  has  been  true  in  certain 
cases  where  the  foreigner  had  to  enter  this  market, 
either  to  dispose  of  a  surplus  stock  or  to  avail  him- 
self of  the  one  possible  market.  Some  years  ago, 
before  the  Canadian  railways  were  built,  the  producer 
of  wheat  in  M.anitoba  had  to  market  his  crop  in  this 


INDUSTRIES  AND  COMMERCE  71 

country.  The  market  price  wa^  fixed  within  our 
country  by  local  conditions  and,  therefore,  wheat  with 
the  tariff  at  $.25  a  bushel  sold  at  $.25  less  on  the 
Manitoba  side  of  the  boundary  than  in  Minnesota. 
Thus  the  foreigner  paid  the  duty. 

Certain  other  classes  of  goods,  such  as  woolens, 
are  manufactured  here  in  part;  in  part  they  are  im- 
]:)orted.  In  these  cases  the  foreign  producer  in  order 
to  force  his  way  into  our  market  against  our  competi- 
tion, has  usuallj^  to  lower  his  price  somewhat,  altho 
generally  not  to  the  full  amount  of  the  tariff.  The 
burden  is  thus  borne  in  part  by  him,  in  part  by  the 
American  consumer.  How  the  burden  shall  be 
divided  depends  upon  the  relative  demand  and  supply. 
If,  for  any  reason,  our  supply  is  short  so  that  prices 
go  up  and  we  must  have  the  goods  to  meet  our  needs, 
the  American  consumer  will  pay  most  if  not  all  of  the 
tax.  If,  on  the  other  hand,  our  market  is  fairly  well 
supplied  by  the  home  producer  and  the  foreign  pro- 
ducer has  a  surplus,  he  must  cut  his  prices  in  order 
to  get  into  our  markets.  He  will  then  be  carrying 
most  or  all  of  the  duty.  The  changing  conditions  of 
the  market  shift  the  burden,  but  it  is  fair  to  say  that 
speaking  generally  the  consumer  bears  a  considerable 
part  of  it. 

10.  How  far  should  a  country  he  self-sufficient? — 
Many  argue,  however,  that  even  tho  the  tariff  be 
a  burden  upon  the  consumer,  it  is  wise  to  bear  it 
in  the  case  of  many  products,  in  order  that  the  coun- 
try may  be  self-sufficient,  especially  in  time  of  war. 


72  BUSINESS  AND  THE  GOVERNMENT 

This  was  one  of  the  arguments  given  thirty  years 
ago  in  Germany  for  maintaining  the  duties  on  grain 
as  well  as  for  building  up  many  diversified  industries. 
This  is  an  argument  advanced  now  in  this  country 
for  government  ship-building  yards,  munition  plants, 
establishments  for  the  building  of  armor  plate,  powder 
mills  and  numerous  other  plants.  The  argument 
received  great  emphasis  from  war  experience. 

11.  Education  and  diversification. — Other  indus- 
tries have  in  themselves  a  cultural  or  educational  value 
aside  from  advantage  in  times  of  conflict.  It  is,  how- 
ever, always  a  question  whether  a  country  gains  more 
by  excluding  foreign  competition  and  attempting  to 
supply  itself  or  by  getting  the  benefit  of  foreign  train- 
ing thru  the  removing  of  obstacles  to  the  influx  of 
foreign  ideas  by  the  importation  of  foreign  products. 

Our  artists  and  lovers  of  art  smile  disdainfully  at 
a  tariff  on  pictures,  and  our  highest  protectionists 
have  not  ventured  to  limit  the  importation  of  ancient 
or  medieval  art.  But  even  those  who  would  admit 
free  art  and  artists,  including  operatic  stars  (for 
they  are  exempt  from  the  provisions  of  our  contract 
labor  law) ,  would  often  not  argue  for  the  free  admis- 
sion of  even  the  most  artistic  modern  furniture  or 
porcelain  or  indeed  of  any  series  of  such  products. 

And  yet  highly  skilled  artisanship  tends  to  stimulate 
invention  and  to  produce  competent  and  adaptable 
workmen  whose  services  will  fill  a  genuine  need  and 
increase  many  times,  perhaps,  the  productivity  of  their 
labor.     Diversified  industries  not  only  satisfy  a  wider 


INDUSTRIES  AND  COMMERCE  73 

range  of  human  needs,  but  by  furnishing  an  oppor- 
tunity of  employment  to  all  kinds  of  talents  doubtless 
increase  the  productivity  far  beyond  what  is  possible 
among  people  practically  all  of  whom  are  engaged 
in  like  lines  of  activity. 

12.  Diversion  of  capital  into  less  profitable  indus- 
tries.— If  a  protective  tariff  is  really  needed  for  any 
industry  in  order  to  enable  the  producers  to  secure 
higher  prices  than  would  be  possible  in  competition 
with  foreign  goods,  capital  is  drawn  from  industries 
normally  yielding  high  profits  into  some  making  lower 
profits  before  the  duty  is  levied.  Provided,  however, 
that  the  industry  is  well  chosen  as  one  adapted  to  the 
country  and  having  only  to  overcome  the  difficulties  of 
starting  production,  and  provided  further,  that  the 
tariff  is  scientifically  levied  and  in  due  time  removed, 
it  is  probable  that  a  new  industry  will  be  established 
that  raises  the  total  productivity  of  the  country. 

13.  Effect  of  the  tariff  on  wages. — The  wages  that 
can  be  paid  in  any  industry  are  directly  dependent 
on  the  economic  productivity  of  that  industry.  If 
it  is  run  with  low  profits,  wages  must  be  relatively 
low  in  cost  however  high  in  money  rates.  If  the 
gains  are  high,  wages  may  well  be  raised.  In  ac- 
cordance with  the  principles  of  a  protective  tariff, 
it  is  clear  that  as  long  as  a  protective  tariff  is  really 
needed  to  prevent  the  failing  of  an  industry,  that  in- 
dustry is  not  raising  the  total  economic  product  of 
the  country.  That  is  not  saying  that  the  protective 
tariff  may  not  be  justified.     The  industry  may  be 


74  BUSINESS  AND  THE  GOVERNMENT 

new  and  this  condition  merely  temporary.  The  in- 
dustry'- may  be  one  needed  for  the  country's  defense,  or 
for  its  education,  or  other  good  reasons  may  be  found 
for  its  maintenance.  But,  if  the  tai'iff  is  needed  for 
the  industry's  maintenance,  it  does  not  for  the  time 
being  increase  the  country's  total  economic  product. 

Again,  an  increase  in  the  price  of  one  product, 
such  as  will  be  caused  temporarily  at  least  by  a  pro- 
tective tariff,  increases  the  cost  of  living  of  all  per- 
sons in  the  community  who  consume  that  product. 
Taking  industry  as  a  whole  and  wage  earners  as  a 
whole,  it  is  not  possible  for  the  reason  just  given 
that  a  protective  tariff  can  raise  the  general  level  of 
real  wages  (that  is,  the  goods  purchased  with  the 
money  wages)  so  long  as  the  tariff  is  needed  to  main- 
tain the  industry.  It  is  true  that  a  tariff  may  enable 
the  economic  product  of  any  one  industry  to  be  de- 
cidedly increased  and  the  money  wages  or  even  the 
real  wages  in  that  industry  may  be  increased,  but  the 
general  level  of  all  real  wages,  it  is  evident,  cannot 
be  thus  increased. 

The  chief  causes  for  high  wages  in  the  United 
States  have  been: 

(a)  The  influence  of  our  free  land  for  agricultural 
development.  The  large  profits  derived  from  agri- 
culture set  a  standard  for  wages  in  other  industries. 

(b)  In  certain  industries  American  labor  is  excep- 
tionally efficient,  especially  on  account  of  the  intelli- 
gent use  of  machinery  and  the  standardization  of  the 
products.     High  wages  do  not  necessarily  mean  high 


INDUSTRIES  AND  COMMERCE  75 

cost  of  production;  frequently  the  opposite.  We  can, 
therefore,  compete  against  foreign  labor  in  many 
instances  in  the  production  and  exportation  not  only 
of  grain  and  meats  but  also  of  agricultural  imple- 
ments, boots  and  shoes,  typewriters,  and  sewing  ma- 
chines and  many  other  products.  The  determining 
factor  in  the  high  average  of  wages  paid  in  the 
United  States  is  not  the  tariff,  but  free  land  and 
high  productivity  of  labor.  Nevertheless,  the  tariff 
is  the  reason  for  high  wages  in  a  large  number  of 
separate  industries,  and  it  might  well  be  that  a  sud- 
den change  in  the  tariff  would  throw  thousands  out 
of  employment  and  bring  about  widespread  disaster. 

14.  Home  7narket. — The  home  market  theory  of 
protection  has  been  handed  down  since  the  days  of 
Hamilton,  Madison  and  Monroe.  One  argument  of 
Hamilton's,  common  also  today,  was  to  the  effect  that 
the  surplus  products  of  American  farmers  should  be 
absorbed  thru  the  creation  of  a  home  market. 

It  is  true  that  the  checking  of  imports  creates  a 
home  market.  But  the  market  created  is  not  an  addi- 
tional market,  tho  it  may  well  be  a  better  one  since 
foreign  trade  and  labor  are  saved  and  profits  are 
spent  at  home.  It  is  a  different  one.  With  the  crea- 
tion of  the  home  market  comes  the  dwindling  of  the 
foreign  market,  unless  there  has  been  an  increase  in 
output,  since  exports  are  always  paid  for  directly  or 
indirectly  with  imports.  Home  exchange  is  thus 
made  to  take  the  place  of  foreign  exchange  with,  as 
said  above,  a  presumable  savir^  of  freight  and  quite 


76  BUSINESS  AND  THE  GOVERNMENT 

possibly  of  labor.  There  may,  however,  be  a  net 
gain.  Whether  there  is  a  net  gain  will  depend 
upon  relative  prices  and  relative  productivity  of 
labor. 

15.  Do  jjrotective  duties  cause  slackening  of  indus- 
trial progress? — Again,  from  the  standf)oint  of  prog- 
ress made  in  industry  many  claim  that  protection  thru 
the  removal  of  competition  tends  to  make  industry 
stand  still ;  that  it  removes  the  spur  of  incentive ;  that 
equipment  which  would  be  scrapped  and  methods 
which  would  be  abandoned  under  the  competitive 
methods  of  free  trade  are  kept  under  a  policy  of  pro- 
tection. Such  a  condition  overlooks  domestic  com- 
petition which  is  usually  strong,  unless  there  is  a 
monopolistic  combination.  Then  it  may  be  right. 
But  this  principle  of  constant  improvements  is  fol- 
lowed by  the  best  producers  at  any  rate,  regardless 
of  competition,  either  domestic  or  foreign,  when  it  is 
clearly  shown  that  costs  of  production  can  be  lowered. 

16.  Foreign  trade  a  small  jmrt  of  total  trade. — In 
any  consideration  of  the  tariff  it  must  be  remembered 
that  the  foreign  trade  of  any  country  forms  a  com- 
paratively small  part  of  its  whole  trade.  Estimates 
of  the  ratio  of  domestic  to  foreign  trade  have  been  as 
low  as  100  to  1,  and  have  rarely  exceeded  100  to  10. 
These  estimates  were  made  in  a  time  of  peace,  and,  of 
course,  the  war  raised  the  ratio  of  foreign  trade, 
and  t*he  fact  that  the  United  States  is  now  a  strong 
creditor  nation  will  keep  the  ratio  higher  than  before. 
The  fact  still  remains  that  the  domestic  trade  of  this 


INDUSTRIES  AND  COMMERCE  77 

country  caters  to  the  wants  of  far  more  than  one 
hundred  milhons  of  people,  so  that  the  trade  between 
our  several  states  constitutes  the  greatest  free  trade 
area  in  the  world. 

17.  Tariffs  exert  small  influence  on  industry. — 
Moreover,  the  utmost  effect  which  tariffs  can  exert  is 
relatively  small.  The  English  economist  Nicholson 
says:  "Protective  duties  and  bounties  at  the  best 
can  only  direct  the  employment  of  a  comparatively 
small  amount  of  the  labor  and  capital  of  a  country; 
the  greater  part  will  be  employed  according  to  the 
natural  and  acquired  advantages  of  the  country  rela- 
tive to  those  of  other  countries." 

These  uncertainties  render  our  tariff  system  un- 
reliable as  a  source  of  income  and  make  it  advisable 
that  we  have  some  tax  that  can  readily  be  varied  in 
order  to  act  as  a  balance  wheel.  This  is  necessary  in 
order  to  adjust  our  revenue  to  our  necessary  expendi- 
tures so  as  to  balance  our  budget  from  year  to  year. 
The  income  tax  has  been  the  English  balance  wheel,  as 
a  slight  increase  or  decrease  in  the  rate  can  enable  the 
Chancellor  of  the  Exchequer  to  increase  or  decrease 
his  income  by  very  exact  amounts  to  meet  his  needs. 
Our  internal  revenue  taxes  might  have  been  so  used, 
but  we  seem  more  likely  to  follow  the  English  exam- 
ple and  use  our  income  tax. 

18.  Chief  objection  to  tariff. — Perhaps  the  chief  ob- 
jection to  our  tariff  system  is  not  so  much  the  burden 
on  the  taxpayer  as  the  effect  at  times  upon  our  indus- 
trial development  of  the  unscientific  levying  of  the 

XXIV — 7 


78  BUSINESS  AND  THE  GOVERNMENT 

tariff  under  political  pressure  and  the  log-rolling  sys- 
tem that  under  the  circumstances  is  almost  unavoid- 
able. The  establishment  of  our  tariff  commission 
ought  to  go  far  to  remedy  this  evil  by  furnishing  more 
accurate  knowledge  regarding  conditions  of  produc- 
tion and  demand,  both  in  this  country  and  abroad, 
than  it  is  possible  for  congressional  committees  to 
secure  in  the  short  period  in  which  they  must  complete 
their  work. 

19.  Machinery  in  tariffs. — The  collection  of  duties 
on  commodities  entering  the  United  States  is  en- 
trusted to  the  customs  service.  For  this  purpose  the 
country  is  divided  into  a  large  number  of  customs 
districts,  in  e'ach  of  which  there  is  at  least  one  port 
of  entry  where  are  stationed  the  collector  of  customs, 
appraisers,  surveyors,  inspectors,  special  agents  and 
in  some  cases  a  naval  officer.  Other  ports  of  entry 
are  designated  if  the  needs  of  business  make  it  neces- 
sary. 

New  York  is  the  largest  port  of  entry;  about  one- 
half  of  our  foreign  commerce  comes  thru  this  port 
alone,  at  which  the  customs  service  employs  more  than 
thirty-five  hundred  men. 

Goods  imported  are  examined  and  appraised  at  the 
custom-house,  the  public  stores  or  appraisers'  ware- 
house. In  cases  of  dispute,  arrangements  are  made 
for  proper  appeals  to  see  that  exact  justice  is  done. 

20.  Goods  under  bond. — In  case  the  importer  does 
not  care  to  withdraw  his  goods  at  once  he  may  de- 
posit them  under  bond  in  a  warehouse  for  any  time 


INDUSTRIES  AND  COMMERCE  79 

up  to  three  years,  and  defer  the  payment  of  duties 
until  the  withdrawal. 

If  the  importer  wishes  to  put  his  goods  in  a  manu- 
factm'ing  warehouse  he  is  permitted  under  bond  to  do 
so.  There  he  can  manufacture  articles  made  from 
imported  materials  subject  to  revenue  tax.  The 
goods  manufactured,  however,  must  be  re-exported. 
This  system  corresponds  to  the  "free-port"  system  of 
some  European  seaports  and  has  proved  to  be  a  great 
stimulus  to  our  export  trade.  It  should  doubtless  be 
supplemented  by  the  establishment  of  a  few  free  ports 
in  this  country. 

A  drawback  is  a  refund  of  the  whole  or  part  of  the 
duty  paid  on  importation  in  cases  where  the  merchan- 
dise is  subsequently  re-exported  within  three  years  in 
the  original  package  of  importation. 

21.  Kinds  of  duties,  {a)  Ad  valorem  duties. — 
In  the  collection  of  duties  three  methods  may  be  fol- 
lowed. Duties  may  be  levied  at  a  named  percentage 
of  the  value  of  the  goods  imported.  These  are  known 
as  ad  valorem  duties. 

The  successful  operation  of  this  system  requires  col- 
lectors of  tested  honesty  and  efficiency  and  importers 
of  high  integrity,  for  there  are  many  instances  of  at- 
tempted undervaluation,  and  just  valuation  requires 
a  large  and  highly  trained  body  of  men,  as  inspectors 
and  appraisers,  who  keep  constantly  informed  regard- 
ing foreign  markets  and  importers,  both  by  study 
and  by  the  use  of  skilled  detectives. 

(b)   Specific  duties. — Specific  duties  are  used  much 


80  BUSINESS  AND  THE  GOVERNMENT 

in  Europe,  but  little  in  the  United  States,  except 
in  combination  with  the  ad  valorem  duty. 

Specific  duties  are  based  on  units  of  measurement, 
number  or  weight — a  certain  amount  of  dollars  or 
cents  per  yard  or  gross  or  pound,  and  so  on.  The 
tariff  under  this  system  must  be  framed  with  greater 
care  for  detail  than  under  the  other,  but  once  framed 
is,  of  course,  easier  to  enforce  by  collection  officials. 

(c)  Compound  duties. — The  third  system  of  duties, 
which  was  much  in  use  in  the  United  States  until  the 
passage  of  the  Underwood  Tariff  Act  in  1913,  is  the 
compound  duty  which  consists  of  the  specific  duty  to 
which  is  added  a  supplementary  ad  valorem  duty. 

This  method  endeavors  to  secure  in  combination  the 
advantages  of  both  systems  and  possibly  may  disguise 
the  amount  of  protection  given  in  the  duty.  This 
form  of  duty  adds  to  its  collection  the  difficulties  of 
both  systems,  and  thus  both  the  making  and  the  work- 
ing; of  the  tariff  schedules  become  more  cumbersome 
and  costly  than  under  either  of  the  other  systems. 

22.  Bounties. — A  bounty  is  as  a  premium  paid  by 
a  government  to  encourage  some  branch  of  production 
or  industry.  A  bounty  policy  is  often  considered  im- 
politic but  is  sometimes  justified  as  a  measure  of  state. 

The  best  known  example  of  a  bounty  granted  by 
the  United  States  in  recent  years  was  the  sugar 
bounty  established  under  the  ^IcKinley  Tariff  Act 
of  1890. 

The  question  of  subsidies  to  shipping  might  well  be 
considered  in  this  connection,  but  this  will  be  found 


INDUSTRIES  AND  COMMERCE  81 

fully  treated  in  the  Modern  Business  Text  on  "For- 
eign Trade  and  Shipping." 

23.  History  of  the  tariff. — A  thoro  discussion  of 
the  tariff  problems  in  any  developed  country  should 
include  a  detailed  statistical  history  of  the  effects  of 
various  schedules.  The  question  is  so  complicated 
that  it  is  impossible  to  predict  with  certainty  what  the 
result  of  any  rate  will  be.  Experience,  however,  maj^ 
serve  as  a  guide,  and  such  experience  should,  of 
course,  always  be  sought  by  legislators  and  students 
of  the  problem. 

24.  Effect  of  the  war. — The  abnormal  conditions 
created  in  this  country  by  the  war  served  to  stir 
afresh  certain  phases  of  our  tariff  controversies.  The 
revenues  were  abnormally  small.  The  opponents  of 
the  tariff,  therefore,  claimed  that  the  tariff  had  been 
unwisely  levied.  The  Allied  nations  at  the  Paris 
Economic  Conference  of  June,  1916,  took  counsel 
with  one  another  with  reference  to  the  protection  of 
their  common  interests  after  the  war  was  ended. 
At  that  time  radical  discriminations  in  favor  of  the 
Allies  were  decided  upon.  Since  that  date  the 
changes  both  economic  and  political  have  been  so  vast 
that  the  peace  conference  in  Versailles  found  it  neces- 
sary to  consider  the  whole  matter  anew.  It  is  entirely 
])ossible  that  final  measures  of  international  coopera- 
tion, not  only  political  and  military,  but  also  economic 
and  financial,  will  entirely  change  the  world  outlook 
upon  this  vital  problem. 

2.5.  Dumping. — In  many  lines  of  industiy  foreign 


82  BUSINESS  AND  THE  GOVERNMENT 

governments  accumulated  large  stocks.  They  are 
naturally  attempting  to  break  down  certain  of  our 
new  industries  and  to  regain  their  lost  markets  by 
"dumping"  upon  this  country  these  surplus  stocks  at 
prices  below  our  cost  of  production.  It  is  claimed 
that  this  was  the  policy  followed  by  Great  Britain 
after  the  War  of  1812.  Why  should  not  such  a  policy 
follow  this  war?  Fearing  such  a  contingency  provi- 
sion was  fully  made  in  the  revenue  act  of  1916  for 
adequate  protection. 

26.  Economic  independence  of  nations. — The  war 
has  brought  home  to  all  countries  the  necessity  of 
being  able  to  feed  and  clothe  their  citizens  and 
soldiery,  and  to  meet  war  emergencies  of  all  kinds. 
Even  prior  to  the  war  England  and  Germany  were 
debating  how  means  might  be  found  to  raise  cotton 
so  that  they  would  be  less  dependent  upon  the  United 
States  for  their  supply.  Since  the  war,  in  cases  where 
the  United  States  has  been  the  source  of  supply  for 
countries  of  Europe,  the  countries  with  colonies  are 
encouraged  to  produce  foodstuffs  and  other  neces- 
sary commodities.  They  are  also  endeavoring  to  get 
control  by  purchase  in  other  countries  of  sources  of 
important  materials  such  as  oil  and  rubber.  The 
countries  without  colonies  will  make  earnest  and  re- 
peated efforts  to  raise  such  supphes  -at  home.  The 
slogan  for  all  will  be  "self  sufficiency."  Even  the 
United  States  is  feeling  the  need.  The  Government 
shortly  before  our  entrance  into  the  war  took  stock  of 
our  industries  to  see  how  they  could  be  best  used  to 


INDUSTRIES  AND  COMMERCE  83 

produce  munitions.  Some  of  our  great  business 
houses  are  aiming  to  secure  a  sufficient  supply  of  rub- 
ber under  American  control.  Other  industries  like 
oil,  copper,  and  abrasives  are  at  work  in  the  same  di- 
rection and  the  question  has  brought  up  the  tariff 
arguments. 

27.  A  tariff  commission. — For  some  years,  leading 
men  in  both  the  great  political  parties  have  advocated 
"taking  the  tariff  out  of  politics"  by  the  appointment 
of  a  non-partisan  scientific  tariff  commission.  Ow- 
ing to  partisan  strife  in  a  late  Republican  adminis- 
tration, a  permanent  tariff  commission  could  not  be 
created,  but  an  appropriation  was  made  for  the  ap- 
pointment of  a  Tariff  Board  to  perform  somewhat 
similar  services  and  to  make  recommendations  to 
Congress. 

When  the  opposing  party  came  into  power  it  was 
eager  to  give  immediate  effect  to  its  own  tariff  prin- 
ciples: the  Tariff  Board  failed  to  receive  its  sup- 
port and  went  out  of  existence.  The  same  party, 
however,  appointed  a  Tariff  Commission  which  is 
making  a  careful  study  in  this  country  and  abroad 
of  industrial  conditions  with  reference  to  specific  in- 
dustries in  such  a  way  that  it  may  regidarly  supply 
trustworthy  data  for  the  use  of  Congress.  Such  a 
board,  with  a  conservative,  trained  personnel  may 
well  accomplish  great  good.  Its  aid  was  never  more 
needed  and  probably  at  no  time  has  public  opinion 
been  more  ready  to  accept  its  recommendations.  It  is 
to  be  hoped  that  it  will  be  properly  supported  and 


84  BUSINESS  AND  THE  GOVERNMENT 

its  recommendations  properly  considered.  This  is 
likely  to  be  the  chief  factor  in  any  solution  of  our 
tariff  problem. 

REVIEW 

What  are  the  three  leading  types  of  tariff  systems? 

Who  were  the  Mercantilists  ? 

What  was  Alexander  Hamilton's  chief  reason  for  advocating  a 
protective  tariff? 

Why  did  the  southern  states  oppose  a  protective  tariff? 

W^hat  classes  of  goods  are  best  suited  to  a  revenue  tariff? 

How  far  is  the  argument  in  favor  of  promoting  infant  indus- 
tries by  protective  duties  sound? 

What  are  the  reasons  why  a  country  should  be  economically 
self-sufficient  ? 

Analyze  briefly  the  common  arguments  to  the  effect  that  a 
protective  tariff  increases  wages. 

Explain  the  duties  of  the  United  States-  oflScials  in  connection 
with  the  importation  of  goods. 

What  is  a  bounty  as  contrasted  with  customs  duties? 

Indicate  briefly  the  effect  of  the  recent  European  war  on  tariff 
sentiment  in  the  United  States. 

Should  the  Tariff  Commission  be  limited  to  making  reports  to 
Congress  or  should  it  be  given  definite  powers  over  tariff"  rates? 


CHAPTER  V 

PUBLIC  INSPECTION  OF  BUSINESS 

1.  Controversy  regarding  government  inspection. 
— Bitter  controversy  has  raged  at  various  times  over 
the  question  whether  the  Government,  either  Federal 
or  State,  should  officially  inspect,  examine  and  certify 
to  qualities  of  goods,  to  safety  of  business  organiza- 
tions, to  qualifications  of  individuals.  The  subject  is 
one  of  grave  import,  in  business,  in  sanitation,  in  so- 
cial organization. 

2.  Need  of  standards  in  business. — It  will  be 
readily  conceded  by  all  that  in  many  lines  of  busi- 
ness, standards  must  be  set  up  which  can  be  easily 
tested  and  recognized.  These  may  be  standards  of 
size  or  weight  or  time;  standards  of  quality  as  re- 
gards goods;  standards  of  fitness  in  the  case  of  men 
or  women  who  have  duties  to  perform  which  require 
skill  and  knowledge  and  where  ignorance  might  well 
cause  great  private  or  public  loss.  Some  of  these 
needs  have  long  been  recognized  in  all  the  leading 
countries  of  the  world.  The  question,  nevertheless, 
frequently  arises  whetlier  or  not  government  inspec- 
tion is  better  than  private  inspection  as  regards  ac- 
curacy and  public  confidence  as  well  as  expense.  A 
moment's  thought  upon  the  wide  extent  of  the  field 

85 


86  BUSINESS  AND  THE  GOVERNMENT 

of  inspection  will  also  show  that  it  covers  business 
and  activities  of  so  divergent  a  character,  ranging 
from  purely  physical  matters  to  personal  character- 
istics and  the  moral  influence  which  certain  activities 
may  exert,  that  the  whole  question  demands  careful 
analysis  and  presumably  the  setting  up  of  principles 
on  which  may  be  based  different  methods  suitable 
to  different  cases. 

3.  Weights  and  measures. — Everything  that  is  to 
be  measured  must  have  the  measurement  expressed 
in  terms  of  some  unit  or  standard.  The  standard  of 
length  in  Great  Britain  and  the  United  States  is  the 
yard,  which,  in  Great  Britain  is  the  distance  at  62°  F., 
between  two  plugs  of  gold  sunk  in  a  bar  of  platinum, 
preserved  in  London.  In  the  United  States  the 
yard,  in  accordance  with  our  law,  is  taken  from  the 
prototype  meter  in  the  National  Bureau  of  Standards 
at  Washington  and  is  derived  from  it  in  the  ratio 
of-^^.  The  international  standard  of  length  is  the 
meter,  from  which  the  United  States  standard  rs 
taken.  That  standard  is  preserved  in  Paris.  It  was 
established  by  the  French  Republic  in  1801.  The 
unit  was  intended  to  be  one  ten-millionth  part  of  the 
distance  from  the  pole  to  the  equator.  Remeasure- 
ments  proved  that  the  meter  had  been  made  slightly 
too  short,  so  that  now  it  is  defined  as  the  length  of  a 
certain  bar  of  iridio-platinum  (ten  per  cent  iridium). 
The  original  meter  in  this  form  is  preserved  in  the 
Bureau  des  Archives  at  Paris.  Certified  copies  of 
the  same  form  and  material  are  owned  by  all  civilized 


PUBLIC  INSPECTION  OF  BUSINESS  87 

nations,  that  of  the  United  States  being  preserved  at 
the  Bureau  of  Standards,  Washington.  Since  it  has 
been  proved  that  this  meter  is  not  exactly  the  one 
ten-milhonth  part  of  one-quarter  the  circumference 
of  the  earth,  as  had  been  intended,  it  is  no  better  than 
the  yard  or  any  other  standard  that  might  be  taken. 
Inasmuch,  however,  as  its  multiples  and  sub-multiples 
have  been  fixed  on  the  decimal  system,  it  has  been 
made  the  general  international  standard.  In  estab- 
lishing the  meter  as  a  standard  the  French  govern- 
ment related  the  measures  of  area,  weight  and  volume 
to  the  meter  and  also  to  the  most  universal  feature  in 
nature,  water.  For  example,  the  gram  (unit  of 
weight)  is  the  weight  of  one  cubic  centimeter  of 
water;  the  liter  (unit  of  volume)  is  the  volume  occu- 
pied by  a  mass  of  one  kilogram  of  water  (measured 
in  both  cases  at  the  point  of  its  maximum  density — 
4=  C). 

From  these  illustrations  it  will  be  seen  what  great 
care  and  trouble  have  been  taken  by  all  leading  na- 
tions to  determine  these  standards  by  which  we  buy 
and  sell  goods  of  various  kinds.  To  prevent  cheat- 
ing on  the  part  of  merchants  by  the  use  of  short  meas- 
ures or  inaccurate  weight  scales,  there  are  appointed 
government  inspectors  of  weights  and  measures  with 
authority  to  make  comparison  with  the  standard  at 
any  time  at  their  will  of  the  weights  and  measures 
used  by  any  business  man.  If  a  dealer  uses  inac- 
curate measures  he  may  be  severely  punished. 

In  like  manner  governments  set  up  certain  stand- 


88  BUSINESS  AND  THE  GOVERNMENT 

ards  of  value.  For  example,  in  the  United  States, 
the  dollar  is  1.672  grams  of  gold  .900  fine.  In  a 
similar  way  in  Great  Britain  the  £  sterling  is  7.988 
grams  of  gold  .916%  fine.  In  Germany  the  mark 
is  .398  grams  of  gold  .900  fine.  In  France  the  franc 
is  .3226  grams  of  gold  .900  fine.  At  times,  how- 
ever, in  places  where  the  Government  has  not  by 
authority  defined  standards,  private  individuals  or 
companies  have  done  so.  On  account  of  the  uni- 
versalit}^  of  their  use,  people  very  generally  do  not 
realize  what  infinite  pains  have  been  taken  by  gov- 
ernments to  establish  and  maintain  these  standards 
unvarying,  in  order  that  business  may  be  safely  done. 
Without  such  standards  the  business  world  would  be 
chaos. 

4.  Salt,  lumber,  grain  and  sugar. — INIany  com- 
mon articles  of  consumption  must  be  bought  and  sold 
according  to  standards  of  quality  when  from  the  na- 
ture of  the  merchandise  the  quality  is  not  readily  dis- 
cernible by  an  untrained  purchaser. 

(a)  Salt  is  sometimes  mined,  being  taken  from  the 
earth  in  the  form  in  which  it  enters  into  commerce. 
In  this  country  it  is  usually  found  in  solution  with 
water  (brine),  and  the  salt  is  secured  by  evaporation 
of  the  water.  In  a  similar  way,  a  veiy  large  propor- 
tion of  the  salt  manufactured  and  used  in  China  is 
secured  by  the  evaporation  of  sea  water. 

In  all  these  cases  it  is  practically  impossible  for 
the  ordinary  purchaser  to  determine  the  quality  of 
the  salt,  excepting  in  the  most  general  way.     The 


PUBLIC  INSPECTION  OF  BUSINESS  89 

governments  of  various  states  have  therefore  ap- 
pointed inspectors  whose  business  it  is  to  test  the  salt 
and  certif}^  as  to  its  quality  before  it  is  put  into  the 
market  for  sale  and  purchase. 

( b )  Lumber  is  prepared  for  the  market  by  sawing 
it  into  boards,  planks  and  beams  of  various  sizes 
and  shapes  to  meet  the  needs  of  purchasers.  Of 
greater  importance  still,  however,  is  the  quality  of 
the  wood  as  regards  the  species  of  the  tree  from  which 
it  is  derived,  its  soundness  and  its  freedom  from  knots 
and  rot.  In  earlier  days,  men  familiar  with  the  quali- 
ties of  lumber  or  timber  fitted  for  various  purposes 
inspected  the  lumber  as  it  came  from  the  mills  to  be 
shipped  to  the  great  lumber  yards  for  distribution 
to  the  users.  These  men,  by  practice  and  associa- 
tion one  with  the  other,  acquired  a  rare  degree  of 
skill,  so  that  the  inspection  by  different  men  at  dif- 
ferent places  showed  on  the  whole  suffcient  uniformity 
to  enable  them  to  do  business.  In  certain  places, 
however,  an  attempt  has  now  been  made  to  determine 
standards  by  government,  and  government  inspection 
assists  the  dealers. 

(c)  Wheat,  oats  and  corn  are  not  sold  by  the  meas- 
ured bushel  only.  The  bushel  itself  is  usually  of  late 
years  determined  by  the  weight  of  the  grain  rather 
than  by  the  bulk,  inasmuch  as  the  varying  qualities 
for  a  standard  bushel  in  bulk  differ  greatly  in  weight, 
and  the  quality  of  the  kernels  themselves  vary. 
Moreover,  the  wheat  or  oats  may  have  mixed  with 
them  various  quantities  of  seeds  from  weeds  or  other 


90  BUSINESS  AND  THE  GOVERNMENT 

substances  because  the  grain  has  not  been  carefully 
cleaned.  Custom  among  the  grain  dealers  had  early 
fixed  many  quality  standards,  but  now  many  of  our 
states  have  set  up  local  standards  and  have  provided 
government  inspectors.  This  practice  of  classifying 
and  grading  grain  is  distinctly  American  in  origin. 
The  Board  of  Trade  of  Chicago  began  it  in  1858. 
State  inspection  was  begun  by  Illinois  in  1871,  fol- 
lowed later  by  Missouri,  jNIinnesota,  Indiana  and 
Kansas.  Now  most  of  the  states  and  markets  east  of 
the  Rockies  have  a  substantially  uniform  practice. 
An  Englishman  of  prominence  in  the  grain  trade  has 
said  that  of  all  the  inventions  of  human  ingenuity 
in  the  grain  business  the  American  system  of  grading 
is  the  greatest. 

(d)  Sugar  bought  in  large  quantities  by  the  great 
refineries  has  also  been  standardized,  the  standards 
varying  somewhat  in  the  different  countries ;  but  they 
are  so  well  known  that  there  is  little  difficulty  in  mak- 
ing comparisons.  For  example,  in  the  United  States 
standard  raw  sugar  is  96°  centrifugal,  polarization 
test,  and  with  this  as  a  basis,  the  various  grades  of 
raw  sugar  are  worked  out.  The  refined  sugar  is  rep- 
resented by  the  granulated  sugar.  These  and  for- 
eign standards  are  substantially  uniform  and  can  be 
readily  applied  by  all  the  large  manufacturers  and 
dealers.  Inasmuch  as  the  sugar  trade  is  to  a  con- 
siderable extent  in  the  hands  of  a  relatively  few  large 
producers,  their  gradings  are  accepted  by  the  mass 
of  dealers.     It  can  readily  be  seen  how  absolutely 


PUBLIC  INSPECTION  OF  BUSINESS  91 

essential  such  a  standardization  is  in  these  and  many 
other  lines  of  industry. 

5.  Inspection  of  meats  as  a  commercial  and  sani- 
tary measure. — To  provide  clean,  wholesome  and 
healthful  meats  for  all  is  one  of  the  problems  of  civ- 
ilization. Altho  in  the  past  when  farmers  provided 
their  own  meats  and  when  local  butchers  supplied 
villages  and  cities  it  was  possible  for  individuals  to 
have  some  supervision  of  their  supply,  that  is  no 
longer  possible  in  our  large  towns  and  cities.  There 
must  be  some  careful  inspection  and  this  inspection 
in  part  has  been  taken  over  by  the  Federal  Govern- 
ment. The  states  have  not  yet  undertaken  the  in- 
spection of  meats  on  a  wide  scale,  altho  in  many 
states,  as  in  Xew  York,  great  care  is  taken  to  protect 
herds  from  tuberculosis,  foot  and  mouth  disease,  and 
other  diseases  affecting  meat-producing  animals. 

In  spite  of  many  sharp  criticisms  of  the  Federal 
inspection  service,  fraud  and  carelessness  having  been 
charged  from  time  to  time  by  magazine  writers,  much 
has  been  accomplished.  Inspectors  see  the  animals 
when  alive,  are  present  when  they  are  slaughtered  and 
inspect  them  afterwards.  The  Federal  authorities, 
however,  inspect  only  about  one-half  of  the  supply. 
Probably  two  per  cent  of  the  supply  is  diseased  and 
should  be  condemned.  Naturally,  the  diseased  cattle 
are  likely  to  be  shipped  to  places  where  there  is  no 
inspection.  The  Federal  inspection  service  covers 
the  packing  establishments  whose  products  go  into 
interstate  commerce,  some  eight  hundred  in  all.     In- 


92  BUSINESS  AND  THE  GOVERNMENT 

asmuch  as  these  great  packing  houses  are  mostly  in 
the  West  and  the  cattle  are  those  taken  from  the 
ranges,  the  probability  is  that  the  cattle  slaughtered 
in  these  establishments  are  those  less  subject  to  dis- 
ease, and  the  dairy  cattle  in  the  East  are  more  likely 
to  be  infected  with  tuberculosis. 

6.  Inspection  for  the  export  trade. — A  prominent 
influence  in  estabhshing  and  maintaining  our  meat  in- 
spection law  was  the  action  taken  by  some  foreign 
governments,  especially  Germany,  against  the  impor- 
tation of  American  meats,  the  alleged  ground  being 
that  the  meat  was  diseased.  There  was  at  the  time 
more  or  less  trichinae  in  American  hogs.  Numerous 
cases  were  found  in  the  American  population  as  well 
as  some  in  Germany,  and  it  is  probable  that  some  of 
the  cases  in  the  latter  country  were  those  of  people 
who  had  eaten  American  pork,  it  being  customary 
in  Germany  to  eat  uncooked  ham.  Aside  from  the 
fact  that  there  was  some  ground  for  believing  that 
American  meats  were  unsanitary,  was  the  considera- 
tion that  German  farmers,  especially  the  great  land 
owners,  were  feeling  the  competition  of  American  im- 
ported meats,  so  that  the  exclusion  of  American  pork 
was  based  largely  on  commercial  grounds.  The 
prompt  action  of  our  Federal  Government  in  creat- 
ing an  inspection  bureau  that  could  be  well  enough 
organized  to  control  absolutely  all  exported  meats 
gave  our  Government  the  opportunity  to  bring  pres- 
sure to  bear  upon  Germam^  to  revise  its  laws  and  to 
permit  the  importation  of  American  meats. 


PUBLIC  INSPECTION  OF  BUSINESS  93 

The  study  of  the  problem  by  scientific  experts  has 
made  it  possible  to  prevent  comjilete  loss,  even  when 
animals  are  afflicted  with  certain  diseases.  Some  dis- 
eases being  purely  local  in  their  nature,  the  greater 
part  of  the  meat  is  not  tainted  by  them.  Other  dis- 
eases which  render  meats  unfit  for  food,  do  not  destroy 
their  utility  for  certain  manufacturing  processes.  All 
these  facts,  however,  merely  emphasize  the  need  of 
skill  in  inspection,  such  inspection  to  be  universal, 
and  rigidly  enforced. 

7.  Pure  food  laxjcs. — In  the  United  States  no  ef- 
fective food  laws  were  passed  until  1883  when  the 
state  of  Massachusetts  passed  an  act  containing  what 
have  since  become  the  fundamental  principles  of  the 
food  and  drug  acts  of  the  various  states  and  of  the 
Federal  Food  and  Drug  Act. 

In  1905-06  public  sentiment  was  greatly  aroused 
by  exposure  of  food  frauds  resulting  in  the  passage  by 
Congress  of  the  Food  and  Drug  Act,  which  was  ap- 
proved June  30,  1900.  From  the  standpoint  of  pub- 
lic health  as  well  as  public  honesty,  the  act  is  one 
of  the  greatest  importance. 

This  act  is  intended  primarily  to  prevent  the  adul- 
teration of  food  and  drugs.  Dinjgs  must  not  vary 
from  the  standard  recognized  in  the  national  formu- 
lary unless  the  degree  of  tlie  strength,  quality  and 
purity  is  stated  on  the  container  in  which  it  is  offered 
for  sale.  Food  is  adulterated  if  any  substance  has 
been  mixed  witli  it  so  as  to  reduce  its  quality  or 
strength,  or  has  been  substituted  wholly  or  in  part 

XXIV — 8 


94.  BUSINESS  AND  THE  GOA  ERNMENT 

for  the  article  itself.  It  is  also  adulterated  if  any 
valuable  constituent  has  been  abstracted  or  if  it  has 
been  so  treated  as  to  conceal  any  damage  or  infe- 
riority, or  if  any  injurious  ingredient  has  been  added, 
or  if  it  consists  in  any  degree  of  filthy  or  decomposed 
animal  or  vegetable  substances  or  any  portion  of  an 
animal  diseased  or  that  has  died  otherwise  than  by 
slaughter.  Preservatives  may  be  applied  externally 
to  food  products  if  directions  for  their  removal  are 
printed  on  the  package.  Articles  may  not  be  mis- 
branded  b}^  placing  any  design,  device  or  statement 
on  the  package  or  label  which  shall  be  misleading  in 
any  particular,  and  misbranding  is  to  be  prosecuted 
the  same  as  adulterating.  The  dealer  is  not  held 
liable  if  he  can  show  a  guarantee  from  the  seller  re- 
siding in  the  United  States  that  the  goods  are  not 
adulterated  or  misbranded. 

The  Bureau  of  Chemistry,  Department  of  Agri- 
culture, is  the  tribunal  to  decide  whether  any  speci- 
fied food  substance  is  deleterious. 

The  enforcement  of  the  law  has  doubtless  been  very 
helpful  in  restricting  greatly  the  use  of  many  patent 
medicines,  injurious  in  their  character.  On  the  other 
hand,  by  compelling  manufacturers  to  label  their 
goods  so  as  to  disclose  clearly  their  contents,  it  has 
enabled  consumers  to  buy  with  full  knowledge  of  their 
purchases  and  is  tending  to  benefit  honest  manufac- 
turers of  wholesome  products.  In  this  way  it  has 
been  promotive  of  trade  of  the  better  sort.  Again, 
by  its  rigid  enforcement  it  has  been  protective  of  the 


PUBLIC  INSPECTION  OF  BUSINESS  95 

honest  manufacturer  and  dealer,  and  has  freed  hiiii 
largely  from  the  pressure  earlier  brought  upon  him 
by  his  competitors  to  deceive  his  customers.  It  is 
thus  promotive  of  wholesale  honesty. 

It  would  be  a  great  advantage  in  an  ways  if  we 
could  have  one  uniform  system  of  pure  food  laws  that 
should  be  enforced  thruout  the  country,  instead  of  a 
burden  of  laws  varying  from  state  to  state. 

Of  course,  there  is  an  added  burden  of  cost  in 
pure  foods.  Cleanliness  costs,  but  for  that  the  con- 
sumer is  glad  to  pay.  ^Moreover,  when  one  reads 
accounts  of  the  deceptions  that  have  been  practiced  in 
the  production  of  many  common  articles  of  food,  such 
as  canned  fruits  and  vegetables,  one  sees  the  advan- 
tage of  rigid  laws  rigidly  enforced.  In  certain  re- 
ports printed  in  the  Scientific  American  we  learn  that 
cannery  waste  such  as  skins,  cores,  decaj^ed  parts  of 
tomatoes,  partly  spoiled  fruits  and  similarly  spoiled 
material  can  be  worked  up  into  catsups  and  soups 
by  dosing  them  with  chemicals,  sj^icing,  coloring  and 
flavoring  them  and  otherwise  preventing  them  from 
fermenting.  Against  such  abuses  the  public  ought 
to  be  protected  and  sliould  be  glad  to  pay  the  cost  of 
protection. 

Perhaps  no  other  single  question  in  connection  witli 
the  food  supply  has  caused  more  discussion  than  that 
of  securing  a  fairly  safe  milk  supply  at  a  cost  not 
prohibitive.  The  problem  has  not  yet  been  solved, 
but  any  energetic  and  efficient  board  of  health  can 
accomplish  much.     Herds  of  cattle  can  be  inspected, 


96  BUSINESS  AND  THE  GOVERNMENT 

the  milk  itself  can  be  regularly  tested  and  measures 
can  be  taken  to  prevent  the  consumption  of  any  milk 
containing  injurious  germs.  Probably  the  Health 
Department  of  New  York  has  done  more  to  insure  a 
safe  milk  supply  than  the  board  of  any  other  city  in 
the  world.     Its  work  sets  a  standard  for  others. 

8.  Banks  and  insurance  companies. — Entirely  dif- 
ferent in  nature  is  the  inspection  of  various  types  of 
business  establishments  to  see  that  they  carry  out  pro- 
visions of  the  law  made  for  their  regulation.  In  the 
Modern  Business  Texts  on  Banking  and  on  Insurance 
will  be  found  the  main  provisions  of  the  laws  regulat- 
ing the  issue  of  bank  notes,  the  holding  of  necessary 
reserves,  the  checks  upon  investments  of  savings  banks 
and  life  insurance  companies.  Both  the  Federal 
Government  and  most  state  governments  have  pro- 
vided for  the  inspection  of  such  institutions  in  order 
to  see  that  their  patrons  are  duly  protected.  It  is 
impossible,  of  course,  for  the  average  depositor  in  a 
bank  to  guard  his  own  interests.  He  is  not  able  to 
investigate,  nor  has  he  the  technical  knowledge  and 
skill  required. 

9.  Protection  of  the  jJuhlic  hy  examination  and  cer- 
tification of  certain  professions. — Among  peoples  in 
earlier  stages  of  advancement,  individuals  have 
usually  been  free  to  make  their  own  reputations  and 
to  use  any  means  that  they  thought  wise  to  get  them- 
selves before  the  public.  Medicine  men,  soothsayers, 
fakirs,  holy  men,  by  various  devices  have  attracted 
and  secured  the  confidence  of  others.     They  have  used 


PUBLIC  INSPECTION  OF  BUSINESS  9T 

or  abused  this  confidence.  They  have  benefited  or 
wronged  those  who  trusted  them.  They  have  pros- 
pered or  suffered  and  have  caused  their  customers  to 
prosper  and  suffer  without  interference  by  the  proper 
government  authorities.  At  times  heads  of  the  state 
or  tribe  have  been  their  chief  patrons;  and  sometimes 
in  case  of  discovery  of  gross  malpractice  these  same, 
patrons  have  inflicted  swift  vengeance.  Even  in  our 
own  country  until  a  late  day  there  has  been  but  scant 
regulation  of  physicians,  lawyers,  teachers.  Any  one 
could  practise  if  he  could  find  patrons. 

At  the  present  time,  however,  all  civilized  states  at- 
tempt to  protect  the  public  against  fraudulent  prac- 
tices. jNIost  states,  largely  at  public  expense,  pro- 
vide for  the  training  of  doctors,  lawyers  and  teachers. 
Physicians  are  not  permitted  to  practise  and  to  earn 
their  living  thereby  until  they  have  been  duly  ex- 
amined by  properly  constituted  governmental  authori- 
ties and  have  been  certified  as  duly  qualified  both  by 
learning  and  by  character  to  practise  their  profession. 
Similar  examinations  must  be  taken  before  lawyers 
can  offer  themselves  for  pay  as  formal  legal  advisers 
to  the  public.  Teachers  also  must  pass  examinations 
as  determined  by  law  and  be  duly  certified  before 
they  may  be  engaged  by  the  public  authorities  to 
teach.  In  most  of  our  states,  private  schools  are  sub- 
ject to  inspection  by  the  educational  authorities;  and, 
if  the  results  of  such  inspection  show  that  the  school 
has  not  attained  certain  standards  of  excellence,  its 
methods  and  teachers  must  be  changed  or  the  chil- 


98  BUSINESS  AND  THE  GOVERNMENT 

dren  attending  will  not  have  fulfilled  the  legal  regula- 
tions regarding  school  attendance. 

10.  Certification  of  other  servants  of  the  public. — 
In  order  to  protect  the  public  this  work  of  examina- 
tion and  certification  has  been  widely  extended  in 
many  directions.  Persons  are  not  permitted  to  run 
steam-engines,  nor  to  act  as  pilots  in  our  harbors  with- 
out licenses  given  as  a  result  of  examinations.  In 
most  states  chauffeurs  are  required  to  submit  to  tests 
and  receive  a  license  to  run  a  motor  car.  In  certain 
states  barbers  are  not  permitted  to  practise  their  pro- 
fession until  after  due  examination  and  license.  The 
tendency  seems  to  be  to  extend  the  laws  to  practically 
all  kinds  of  occupations  where  malpractice  or  mistakes 
may  result  in  injury  to  the  health  of  individual  pa- 
trons who  are  themselves  for  any  reason  unable  to 
make  proper  investigation  as  to  the  qualifications  of 
those  whom  they  employ. 

Altho  protection  to  the  public  is  the  reason  usually 
assigned  for  such  laws,  the  promoters  are  often  men 
in  the  trade  or  profession  who  wish  to  lessen  competi- 
tion b}'^  excluding  all  those  who  cannot  pass  such  ex- 
aminations. The  commercial  spirit  doubtless  in  many 
instances  works  under  the  guise  of  the  promotion  of 
public  safety. 

11.  Quasi-official  privileges. — Certain  classes  in  the 
community  by  virtue  of  the  fact  that  they  have  cer- 
tain certificates  granted  them  either  by  the  Govern- 
ment or  by  boards  recognized  by  the  Government  are 
given  privileges  that  are  semi-official  in  their  nature. 


PUBLIC  INSPECTION  OF  BUSINESS  99 

Men  who  have  been  licensed  to  preach  by  the  con- 
stituted authorities  of  their  church,  whatever  its  de- 
nomination, are  thus  recognized  by  the  state.  Mar- 
riage in  the  United  States  under  our  laws  is  a  civil 
act,  whatever  its  religious  character  may  be  in  the 
minds  of  individual  citizens.  Because  the  marriage 
ceremony  has  very  generally  been  considered  neces- 
sary for  the  social  welfare,  it  has  seemed  wise  to  the 
state  to  give  the  power  of  uniting  a  man  and  woman 
in  marriage  to  certain  govermnent  authorities,  such  as 
justices  of  the  peace,  aldermen  or  mayors  of  cities, 
steamship  captains  on  the  high  seas  and  consuls 
abroad,  as  well  as  to  ministers  of  the  gospel.  These 
men  are  required  to  make  returns  to  the  proper  public 
offices  for  record  after  performing  marriage  cere- 
monies. Their  act  of  performing  the  ceremony  is 
recognized  in  the  United  States  as  sufficient  to  make 
the  marriage  valid.  In  many  countries,  for  instance 
Germany  and  France,  the  minister  is  not  given  such 
power.  The  legal  ceremony  must  be  performed  by 
a  government  official.  The  religious  ceremony,  usu- 
ally performed  in  the  case  of  people  of  the  well-to-do 
classes,  is  purely  a  ceremony  for  the  satisfaction  of 
the  parties  concerned  and  has  no  legal  validity. 

Such  grants  of  power  are,  of  course,  beneficial  in 
many  ways,  primarily,  however,  in  that  they  afford 
personal  satisfaction  to  large  numbers  of  people  in 
the  community  and  serve  also  to  encourage  the  main- 
tenance of  religious  feeling.  It  is  a  good  thing  to 
have  the  sanction  of  the  church.     On  the  other  hand, 


100        BUSINESS  AND  THE  GOVERNMENT 

however,  persons  who  have  other  business  besides  per- 
forming such  formal  legal  duties,  are  often  very  re- 
miss in  carrying  out  the  legal  work.  It  is  desirable 
that  proper  records  be  kept  in  public  offices  of  births, 
deaths  and  marriages.  Physicians  whose  duty  it  is  to 
register  births  and  deaths,  and  ministers  who  should 
record  marriages  are  often  careless  in  making  re- 
turns, and  in  this  way  public  interests  suffer.  Gen- 
erally speaking,  business  is  better  performed  by  a  man 
who  devotes  his  time  to  it  instead  of  by  one  to  whom  it 
comes  as  a  mere  incident. 

12.  Limitations  of  inspection. — As  has  already 
been  intimated,  government  inspection  of  late  years 
has  been  greatly  extended  and  seems  likely  to  enter 
many  fields  that  have  hitherto  been  considered  strictly 
private.  Sanitary  inspectors  enter  our  houses  to  look 
over  the  plumbing;  our  children  are  submitted  to  ex- 
amination of  eyes,  teeth  and  skin  in  school;  our  births, 
marriao-es  and  deaths  are  recorded  and  certified  to 
by  public  authorities.  Where  shall  the  limit  be?  It 
seems  clear,  in  the  first  place  for  business  reasons,  that 
in  order  not  to  hamper  individual  initiative,  but  rather 
to  stimulate  invention  and  creative  thought,  govern- 
ment supervision  and  inspection  should  be  limited  as 
much  as  can  be  done  without  detriment  to  the  public 
welfare.  On  the  other  hand,  the  interests  of  indi- 
viduals are  so  intertwined  in  business ;  and,  especialH' 
in  the  great  cities,  the  acts  of  each  individual  are  so 
likely  to  affect  the  welfare  of  his  neighbors  without 
any  possibility  of  their  defending  themselves  against 


PUBLIC  INSPECTION  OF  BUSINESS         101 

infection  and  other  forms  of  injurj%  that  public  wel- 
fare demands  inspection  wherever  carelessness  or  the 
vicious  intent  of  individuals  may  seriously  injure 
others. 

Not  only  business  and  health  demand  careful  con- 
sideration whenever  the  question  of  public  inspection 
is  raised,  but  social  and  ethical  reasons  require  care 
no  less.  The  privacy  of  the  individual  is  a  right  that 
should  be  protected  as  far  as  possible.  The  intimacy 
of  the  home  ought  not  to  be  unnecessarily  invaded. 
An  individual  cannot  grow  morally  any  more  than  he 
can  grow  physically  if  he  is  continually  hampered  and 
if  he  is  not  allowed  the  free  exercise  of  judgment  and 
decision — and  yet  he  must  not  be  permitted  to  injure 
his  fellow  men.  The  rule  for  a  limitation  of  govern- 
ment inspection  must  insure  public  welfare  while  at 
the  same  time  attaining  the  best  development  of  indi- 
vidual citizens. 

REVIEW 

Explain  the  need  of  standards  in  buying  and  selling;  also  the 
business  need  of  the  standard  of  time. 

How  are  the  records  of  the  standards  of  length,  weight  and 
volume  determined  and  preserved? 

\Miat  is  a  dollar? 

Is  it  essential  that  standards  be  maintained  by  governments 
or  may  individuals  or  associations  of  business  men  fix  and  main- 
tain them? 

In  what  way  does  the  inspection  of  meats  affect  the  export 
trade  of  the  United  States? 

What  are  the  essential  provisions  of  the  United  States  Food  and 
Drug  Act? 

Why  do  the  provisions  of  pure  food  laws  increase  the  cost  of 
foods  ? 


102        BUSINESS  AND  THE  GOVERNMENT 

Ought  Christian  Scientists  to  be  permitted  to  treat  sick  people  ? 
Why? 

Ought  teamsters,  accountants,  salesmen,  grocers  and  street 
cleaners  to  be  compelled  to  take  out  a  government  license  before 
doing  their  work? 

Ought  clergymen  to  be  permitted  to  marry  people  until  they 
have  secured  a  marriage  license  from  duly  constituted  authorities  ? 

What  limitations  vpould  you  place  upon  governmental  inspec- 
tion of  business  ? 


CHAPTER  VI 

PROBLEMS  OF  EMPLOYMENT 

1.  The  labor  contract. — Sir  Henry  Maine,  one  of 
the  greatest  authorities  on  social  conditions,  has  said 
that  the  profound  difference  between  societies  in  early 
days  and  at  present  is  that  then  they  were  based  upon 
status,  now  they  are  based  upon  contract.  Formerly, 
people  were  born  into  their  positions,  duties  and 
rights ;  now  they  choose  them.  Then  custom  decided 
their  relations  to  one  another,  now  contracts  decide. 

Practically  all  of  modern  life  is  based  on  contracts, 
leases,  purchases,  marriage,  banking,  railroading, 
manufacturing,  and  not  the  least  important,  the  re- 
lations of  employers  and  laborers.  The  values  di- 
rectly involved  in  American  labor  contracts  cannot 
amount  to  less  than  ten  billion  dollars  yearly.  These 
figures,  however,  give  little  idea  of  the  far-reaching 
importance  of  the  labor  contracts.  They  affect  wages 
no  more  than  they  affect  health,  social  conditions, 
morality.  It  is  scarcely  too  much  to  say  that  upon 
the  wisdom,  fairness  and  fidelity  with  which  labor  con- 
tracts, formal  and  informal  as  regulated  by  law  and 
custom,  are  framed  and  carried  out  depends  the  con- 
tinuance of  civilized  social  life.  The  determination 
of  wages,  work  and  hours  are  directly  stated  in  the 

103 


104        BUSINESS  AND  THE  GOVERNMENT 

contract,  while  the  varied  conditions  of  work,  respon- 
sibihties  of  the  employer,  physical  environment,  and 
such  matters,  are  indirectly  stated.  After  all  it  is 
the  smaller  part  of  the  contract  that  is  stated  form- 
ally ;  other  parts  are  read  into  it  by  natural  conditions 
and  laws. 

2.  Constitutional  limitations. — The  legal  regulation 
of  the  labor  contract,  orwing  to  changes  in  public 
opinion  and  at  times  to  wrong  motives  of  the  parties, 
is  of  the  greatest  importance.  Generally  speaking, 
the  policy  of  foreign  countries  has  covered  the  field 
of  industrial  relations  more  completely  than  that  of 
the  United  States,  and  is  genei'ally  less  bound  by  con- 
stitutional limitations. 

In  the  United  States,  at  the  time  our  earlier  con- 
stitutions were  framed,  there  was  a  great  jealousy 
for  personal  liberty  and  rights.  The  hands  of  gov- 
ernmental officials  were  rather  firmly  tied.  More- 
over, in  accordance  with  the  American  view  of  the 
desirability  of  self  reliance,  and  self  responsibility  of 
the  individual,  the  American  courts  have  generally 
shown  an  inchnation  to  interpret  these  constitutional 
limitations  rigidly.  In  consequence,  many  attempts 
to  promote  the  welfare  of  adult  male  laborers  in  ways 
that  seemed  to  limit  the  right  of  individual  contract 
have  been  declared  unconstitutional. 

From  another  point  of  view,  the  courts  have  upheld 
the  right  to  assume  control  over  services  of  many 
kinds,  thru  the  power  granted  Congress  to  regulate 
interstate  commerce,  even  upholding  a  law  excluding 


PROBLEMS  OF  EMPLOYMENT  105 

children  from  a  great  part  of  industrial  employment 
by  prohibiting  the  carriage  of  their  products  in  inter- 
state commerce,  the  purpose  being  to  uphold  the  rights 
of  children  too  inmiature  to  defend  themselves  against 
unscrupulous  employers. 

Again,  under  the  so-called  police  power  of  the  states 
and  of  the  Federal  Government,  many  kinds  of  in- 
dustries have  been  placed  under  rigid  control  to  secure 
the  welfare  of  the  people  even  tho  the  liberty  of  con- 
tract is  thereby  limited.  By  governmental  action 
buildings  are  destroyed  to  check  fires;  diseased  ani- 
mals are  killed ;  persons  liable  to  spread  contagion  are 
quarantined — sometimes  for  long  periods. 

3.  American  labor  policy. — Only  lately  has  Amier- 
ica  become  the  leading  industrial  country.  Even  now 
we  cannot  be  said  to  have  any  uniform  labor  policy, 
tho  one  seems  to  be  gradually  forming.  The  Fed- 
eral Government  forbids  the  importation  of  aliens  un- 
der contract ;  some  states  forbid  their  employment  by 
the  state  government.  Other  laws  forbid  the  employ- 
ment of  the  intemperate  or  the  color-blind  in  certain 
callings.  Wages  must  generally  be  paid  in  lawful 
money,  and  the  time,  manner  and  even  the  place  of 
payment  are  regulated.  So  necessary,  however,  for 
the  development  of  the  individual  is  the  assumption 
by  him  of  personal  responsibility,  that  it  has  been 
deemed  wise  to  move  slowly  in  the  direction  of  limit- 
ing freedom  of  contract,  exceptions  being  made  gen- 
erally only  in  connection  with  the  employment  of 
women  and  children.     It  should  still  be  kept  in  mind 


106        BUSINESS  AND  THE  GOVERNMENT 

that  liberty  does  not  mean  necessarily  the  mere  free- 
dom from  control  by  governments  and  laws.  We  are 
dealing  also  with  natural  forces,  with  other  individ- 
uals, and  often  certain  regulations  by  law  may  really 
enlarge  liberty.  Traffic  regulations  and  the  warning 
hand  of  the  traffic  policeman  really  increase  the  free- 
dom of  movement  thru  city  streets.  Like  restraints 
increase  the  freedom  of  exit  from  burning  theatres 
or  factories. 

4.  Results  of  regulation. — On  the  whole  the  results 
of  regulation  in  most  countries  have  doubtless  been 
good,  tho  not  in  all  respects.  Usually  the  most  rigid 
restrictions  are  found  in  states  with  the  greatest 
economic  advancement.  For  example,  ^Massachusetts 
and  New  York  have  not  suffered  generally  in  competi- 
tion with  other  states.  It  is  not  good  business  to 
waste  laborers.  It  is  good  business  to  take  the  best 
possible  care  of  them. 

It  is  desirable  that  in  a  country  like  the  United 
States  the  regulations  be  made  more  nearly  uniform 
either  by  concerted  action  among  the  states  or  by  the 
transfer  of  power  to  the  National  Government.  Usu- 
ally the  better  plan  has  been  regulation  by  industrial 
commissions  that  have  had  a  rather  wide  discretion 
than  by  severe  laws  enforced  by  mitrained  officials. 

5.  New  7ieeds  of  modern  industry. — The  great 
changes  in  modern  life,  especially  those  brought  about 
in  the  latter  half  of  the  eighteenth  century  and  the 
first  years  of  the  nineteenth  in  the  so-called  "industrial 
revolution,"  have  created  many  new  perils  as  well  as 


PROBLEMS  OF  EMPLOYMENT  107 

new  needs.  People  now  have  greater  resources, 
greater  opportunities  for  the  development  not  only 
of  their  bodily  but  also  of  their  intellectual,  aesthetic 
and  spiritual  needs,  and  yet  with  these  new  oppor- 
tunities have  come  many  new  dangers.  In  those  days 
little  was  known  of  public  sanitation;  surgical  skill 
was  rudimentary ;  the  nature  of  the  germ  diseases  was 
unknown.  Modern  improvements  in  these  directions 
have  doubtless  increased  the  length  of  the  average  hu- 
man life  by  a  nuinber  of  years.  A  century  ago  wage 
earners  had  no  abundant  supply  of  wholesome  water, 
no  serums  for  the  cure  of  diphtheria  or  lockjaw,  no 
antiseptics  in  surgery,  no  public  hospitals,  but  they 
lived  more  simply,  they  worked  more  slowly,  they  were 
not  so  liable  to  industrial  accidents  from  complicated 
machinery  or  railway  trains.  Yet  it  is  certain  that 
these  increased  perils  of  modern  life  have  been  more 
than  offset  by  the  additional  preventives  and  protec- 
tions against  disease.  This  fact,  however,  is  of  course 
no  reason  why  these  protections  should  not  be  ex- 
tended and  our  modern  life  continuously  improved. 
Such  improvements  are  desirable  not  merely  fi»om 
the  humanitarian  and  social  point  of  view,  but  also 
from  that  of  good  business.  Accidents  and  disease 
are  expensive.  Safety,  sanitation,  good  health  are 
profitable. 

6.  Extent  of  losses. — It  is  impossible  to  give  an  ac- 
curate measure  of  the  losses  still  suffered  thru  care- 
lessness, but  some  indications  of  the  extent  of  these 
losses  may  be  noted.     According  to  some  of  the  latest 


108        BUSINESS  AND  THE  GOVERNMENT 

estimates,  not,  less  than  23,000  people  are  killed  each 
year  at  their  industrial  work ;  500,000  are  seriously  in- 
jui'ed,  and  the  number  suffering  minor  accidents  runs 
to  at  least  1,500,000.  Mining,  railroading  and  con- 
struction work  are  responsible  for  many  thousand 
fatal  accidents  each  year.  Altho  the  proportion  is 
less  in  agriculture,  owing  to  the  larger  number  em- 
ployed, the  total  number  of  accidents  is  likewise  large. 
The  loss  thru  sickness  among  the  wage  earners  and 
their  families  is  probably  even  greater.  One  of  the 
most  carefully  prepared  estimates  of  the  yearly  cost 
of  sickness  among  wage  earners  placed  the  figures  at 
not  less  than  $750,000,000.  If  this  estimate  was  cor- 
rect and  the  same  sickness  rate  continues  the  wage 
loss  today  must  be  far  higher.  Allowing  for  the 
increase  in  the  number  of  workers  and  assuming  that 
in  1920  wages  and  costs  were  double  those  of  1910, 
the  figure  on  the  same  basis  would  be  approximately 
$1,750,000,000.  However,  not  all  of  this  can  be 
charged  against  employment;  a  large  part  is  doubt- 
less due  to  unliealthful  conditions  outside.  Aside 
from  the  immediate  monetaiy  loss  running  into  the 
hundreds  of  milhons  of  dollars  a  year,  the  pain  and 
grief  of  the  sufferers  and  their  families  should  like- 
wise be  reckoned,  for  after  all  the  real  importance 
of  monetary  gain  and  loss  is  either  directly  or  in- 
directly to  increase  the  comfort  and  satisfaction  of 
human  beings.  And  these  satisfactions,  social,  in- 
tellectual, even  moral,  are  largely  dependent  upon 
economic  and  physical  conditions.     We  must  not  be 


PROBLEMS  OF  EMPLOYMENT  109 

misled.  Modern  conditions  are  doubtless  better  than 
those  that  preceded.  Today  records  are  kept,  yester- 
day they  were  not.  We  understand  conditions  better 
today.  All  the  more  reason  why  we  should  make 
greater  efforts  to  improve  them  still  more. 

7.  The  responsihility  for  these  conditions. — The 
last  few  years  have  seen  a  marked  change  in  the  views 
of  the  most  careful  observers  regarding  the  responsi- 
bility for  these  unfortunate  industrial  conditions. 
Doubtless,  in  many  cases,  the  workman  is  responsi- 
ble, thru  his  carelessness,  for  accident;  or  thru  his 
ignorance,  for  disease.  But  when  accident  or  disease 
arises  from  the  conditions  of  the  factories  or  of  the 
work-shops,  it  is  primarily  the  employer  who  is  respon- 
sible. This  does  not  necessarily  imply  blame  for  the 
employer.  It  does  show  that  improvements  should 
be  made  thru  him. 

8.  The  part  of  the  Government. — It  was  doubtless 
normal  in  the  earlier  days  of  modern  industry  for  the 
employers  to  leave  the  risk  to  be  borne  in'  large  part 
by  the  workmen.  It  takes  time  to  adapt  new  im- 
provements to  living  conditions.  Moreover,  the  ex- 
igencies of  business  competition  often  prevent  the  best 
meaning  and  the  kindest  hearted  men  from  living  up 
to  their  own  standards.  To  instal  safety  devices 
meant  outlay  and  often  a  financially  dangerous  in- 
crease of  expenses.  The  competitor,  therefore,  who 
cared  least  about  the  safety  of  his  workmen  might  be- 
come the  strongest  competitor  in  the  market.  The 
more  kindly  emj^loyer  might  give  warnings  when 

XXIV— 9 


110        BUSINESS  AND  THE  GOVERNMENT 

financial  considerations  would  not  permit  him  to  bear 
the  expense  of  assuring  safety.  Under  these  condi- 
tions the  government  needed  to  intervene.  Naturally 
there  was  not  at  first  any  conscious  adoption  of  a  new 
policy.  As  a  definite  evil  became  evident  a  specific 
requirement  of  change  was  made.  Only  in  the  course 
of  time  did  these  changes  become  so  numerous  that 
general  principles  were  recognized.  In  England,  as 
the  first  prime  seat  of  modern  industry,  the  practices 
were  first  perceived  and  the  first  protections  taken 
with  the  hearty  cooperation  of  the  best  employers. 

The  British  Factory  Acts,  it  is  commonly  stated, 
began  thru  the  Health  and  Moral  Act  of  1802.  This 
required  the  whitewashing  of  the  rooms  occupied  by 
apprentices  in  textile  mills  and  a  few  other  simple  pro- 
visions for  the  health  and  decency  of  the  young  work- 
ers. Thereafter,  gradually,  always  to  meet  a  specific 
evil,  these  Factory  Acts  developed  into  an  extensive 
system  of  requirements  for  the  safety  of  all  classes  of 
workers  in  all  kinds  of  industry. 

One  by  one  different  nations  followed  in  England's 
footsteps.  In  the  United  States,  where  perhaps  more 
than  elsewhere  principles  of  individual  liberty  and  in- 
dividual responsibility  caused  delay,  the  change  came 
first  on  a  large  scale  in  the  years  following  the  Civil 
War.  Since  then  steady  progress  has  been  made. 
In  most  instances,  as  has  been  intimated,  the  new  leg- 
islation has  been  opposed  as  an  unconstitutional  viola- 
tion of  the  guaranteed  liberty  of  the  employer  or  of 
the  workman.     The  laws  for  health  have,  however, 


PROBLEMS  OF  EMPLOYMENT  111 

generally  survived  hostile  criticism.  JNIost  of  them 
liave  proved  their  worth.  Employers  now  in  many 
cases  go  far  beyond  the  legal  requirements. 

9.  Extent  of  requirements. — The  most  minute  re- 
quirements have  been  found  generally  in  mining. 
The  work  in  darkness  underground  and  the  wholesale 
character  of  some  of  the  accidents  bring  that  industry 
vividly  before  the  minds  of  the  people.  Again,  the 
processes  of  the  industry  are  less  varied  than  those  of 
many  kinds  of  manufacturing  so  that  they  lend  them- 
selves more  readily  to  regulation.  ComparatiA'ely 
little  has  been  done  in  agi-iculture.  Naturally  it  is 
the  frequency  of  accident  in  proportion  to  the  num- 
bers employed  that  brings  about  regulation.  Farm- 
ing, altho  it  involves  ;small  risks,  owing  to  the  num- 
bers employed,  kills  in  the  aggregate  more  persons 
in  a  year  than  does  mining. 

At  first  it  was  assumed  in  Great  Britain,  and  to  a 
considerable  extent  is  still  assumed  in  the  United 
States,  that  the  adult  male  workman  can  take  care  of 
himself.  JNIany  more  laws,  therefore,  are  fomid  mak- 
ing provision  for  female  and  youthful  workers  than 
for  men.  Nevertheless,  especially  in  making  provi- 
sion against  accident,  both  voluntary  and  compulsory 
measures  have  been  taken  for  tlie  protection  of  the 
adult  male. 

10.  Regulation  rather  than  prohibition. — Gener- 
ally speaking,  processes  are  not  forbidden,  but  there 
are  some  exceptions.  In  the  United  States  as  well 
as  in  foreign  lands,  the  employment  of  poisonous 


112        BUSINESS  AND  THE  GOVERNMENT 

white  phosphorus  in  the  match  factories  has  been  for- 
bidden. In  certain  cases  women  and  children  are  ex- 
cluded from  certain  types  of  work  in  which  they  might 
suffer  either  bodily  or  moral  injury.  For  example, 
they  are  forbidden  to  work  in  mines,  and  to  engage  in 
certain  classes  of  work  during  the  night.  Sometimes 
for  their  own  sake  or  for  that  of  the  public,  they  are 
excluded  from  the  cleaning  of  moving  machinery.  In- 
temperate, inexperienced,  or  color-blind  persons  are 
excluded  from  railway  train  service ;  inexperienced  or 
unlicensed  men  from  positions  as  mine  foremen. 

But  generally,  instead  of  prohibition  we  find  regu- 
lation, so  adapted  as  to  eliminate  the  dangers  and  re- 
tain the  benefits  of  former  processes.  As  a  rule,  pro- 
tection from  accident  rather  than  from  disease  has 
been  chiefly  in  the  minds  of  those  shaping  the  policies, 
but  of  late  years  much  more  emphasis  than  formerly 
has  been  placed  upon  protection  from  the  so-called 
occupational  diseases,  such  as  those  coming  from  the 
use  of  phosphorus,  from  lead  poisoning,  from  the  use 
of  compressed  air,  or  from  illy-ventilated,  poorly- 
lighted  workrooms.  Sometimes  also  special  emphasis 
is  laid  upon  provisions  for  the  care  of  the  general 
health  and  strength  of  workmen.  There  are  many 
provisions  for  ventilation,  sanitation,  toilet  conven- 
iences, seats  for  operatives  whose  tasks  permit  sitting, 
against  eating  and  sleeping  in  workrooms,  against  too 
long  working  hours. 

11.  Women  and  children. — So  general  and  ex- 
tended are  the  provisions  regulating  the  employment 


PROBLEMS  OF  EMPLOYMENT  113 

of  women  and  cliildren  that  special  note  should  be 
made  of  these.  Before  the  industrial  revolution,  in 
the  days  of  the  household  industries,  there  were  many 
instances  where  the  employment  of  women  and  chil- 
dren was  not  an  evil.  Tasks  were  suited  to  their  ca- 
pacities, their  strcngth  and  skill  without  depriving 
them  of  a  reasonable  amount  of  healthful  relaxation. 
Usually  they  were  working  in  the  household,  not  regu- 
larly for  wages. 

With  the  development  of  the  factory  system,  how- 
ever, conditions  changed.  The  work  of  women  and 
children  threatened  the  wages  of  men  often  to  so  great 
an  extent  that  family  earnings  rather  than  individual 
earnings  were  in  danger  of  becoming  the  standard. 

As  the  need  for  regulation  developed,  specific  re- 
strictions adapted  to  the  cases  were  imposed.  Shorter 
liours  was  one  of  the  first  provisions,  interruptions  of 
labor  for  definite  periods  at  meal  times,  prohibition 
t)f  night  work  in  certain  instances,  the  forbidding  of 
the  employment  of  women  for  a  definite  period  before 
and  after  child-birth,  the  fixing  of  the  age  limit  for 
children  at  fourteen,  or  in  certain  cases,  at  sixteen 
years,  educational  requirements,  sucli  as  proficieney 
in  elementary  English  subjects,  separate  dressing 
rooms  and  toilet  conveniences  for  women,  these  and 
other  provisions  have  all  been  made  with  the  purpose 
of  improving  the  general  condition  of  society.  The 
improvement  of  the  liealth  and  personal  qualities  of 
the  women  and  chil(h-en  makes,  not  only  for  tlie  pres- 
ent, but  also  for  the  future,  better  producers,  better 


114^        BUSINESS  AND  THE  GOVERNMENT 

citizens,  better  men  and  women.  Special  emphasis 
has  been  placed,  and  rightly,  upon  the  unregulated 
employment  of  married  women  and  mothers  of  young 
childi'en.  The  interference  of  unregulated  employ- 
ment with  the  home  has  oft-en  been  the  source  of  most 
harmful  social  evils. 

It  is  doubtful  too,  whether  the  industrial  gain  from 
the  steady  employment  in  industry  of  women  and  chil- 
dren is  so  great  as  has  at  times  been  thought.  Natur- 
ally, there  are  many  individual  instances  where  there 
is  no  male  supporter  of  the  family,  or  where,  owing  to 
special  reasons,  the  father's  wages  are  insufficient  to 
cover  the  family  needs  in  which  the  supplementary 
earnings  of  wife  or  children  are  of  distinct  benefit. 
The  general  opinion  of  the  most  careful  students  of 
the  subject,  including  the  best  employers,  is,  however, 
to  the  effect  that  tho  temporarily  there  might  be  some 
economic  gain  in  hiring  children  and  women  for  low 
wages,  such  gain  cannot  be  realized  permanently  by 
society  if  it  is  made  thru  an  impairment  of  the  quality 
of  the  men  and  women  who  work.  Farmers  do  not 
put  their  half -grown  colts  to  plow.  They  know  there 
would  be  double  folly  in  working  thus  early  the  ani- 
mals from  which  they  expect  to  breed  for  future  use. 

War  conditions  naturally  increased  very  largely 
the  numbers  of  women  engaged  in  business  and  wid- 
ened greatly  the  range  of  those  employments.  From 
present  indications  in  both  Europe  and  the  United 
States  this  experience  is  likely  to  result  in  a  marked 


PROBLEMS  OF  EMPLOYMENT  115 

change.  We  know  better  now  than  ever  before  the 
range  of  adaptabilitj^  of  women  and  children  in  in- 
dustry and  this  experience  will  have  its  permanent 
effect.  Nevertheless,  the  general  principles  will 
doubtless  remain  that  while  there  are  certain  gains,  at 
least  temporarily,  from  such  employment,  there  is 
danger  of  enormous  social  loss,  and  societ}^  must  see 
to  it,  thru  proper  governmental  regulation,  that  abuses 
are  prevented  and  that  society  makes  the  gains  with- 
out suffering  the  losses. 

12.  Minimum  wage. — jNIost  prominent  among  the 
new  movements  to  aid  women  workers  is  that  for  the 
minimum  wage.  The  movement  originated  abroad 
in  the  Australasian  Colonies  in  the  nineties,  followed 
by  Great  Britain  in  1909,  and  France  in  1913.  In 
England  and  her  colonies,  the  laws  aimed  to  secure 
for  workers — men  and  women — a  living  wage.  In 
France  they  began  with  trades  where  wages  were  very 
low — with  the  sweated  trades.  Xow  they  have  gradu- 
ally extended  until  they  include  the  best  paid  with 
the  lowest  paid  workers. 

13.  Laws  in  the  United  States. — In  the  United 
States,  they  began  in  Massachusetts  in  1912.  In  the 
next  year,  Nebraska  followed,  as  did  also  California, 
Colorado,  Minnesota,  Oregon,  Utah,  Washington  and 
Wisconsin.  In  191.5,  Arkansas  and  Kansas  passed 
laws,  while  New  York,  Ohio  and  Michigan  have  been 
carefully  investigating  tlie  subject.  Ohio's  constitu- 
tion  in   1912   authorizes   the   legislature  to   enact   a 


116        BUSINESS  AND  THE  GOVERNMENT 

minimum  wage  law  covering  all  classes  of  employes. 
In  all  our  states,  however,  the  laws  are  strictly  limited 
only  to  women  and  children. 

In  Massachusetts  and  Nebraska,  the  Boards  make 
recommendations,  but  have  no  powers  of  enforcement. 
Public  opinion  is  relied  on.  In  the  other  states,  pro- 
visions are  made  for  enforcement.  In  Utah  and  Ar- 
kansas, the  rates  are  fixed  in  the  laws.  In  other 
states,  a  Wage  Board  or  an  Industrial  Commission 
determines  the  minimum  rate. 

14.  Decisive  ecTperience  still  lacking. — Present 
judgment  upon  the  policy  of  the  minimum  wage  must 
hang  largely  upon  an  analysis  of  principles.  .In  the 
United  States,  the  laws  have  scarcely  gone  into  effect. 
In  British  jurisdictions  experience  has  been  longer; 
but  its  teachings  have  not  yet  been  ascertained  con- 
clusivety,  if  indeed  it  can  be  said  to  have  developed  its 
ultimate  consequences. 

15.  Extent  of  low  wages. — I^ow  wages,  as  readers 
of  this  volume  will  judge  high  and  low  in  relation  to 
the  cost  of  living,  are  doubtless  common  even  yet,  and 
women's  wages  on  the  average  before  the  war  were 
only  some  55.3  per  cent  of  those  of  men.  Of  course 
it  must  be  remembered  that  the  majority  of  women 
workers  live  at  home  as  members  of  families  and 
relatively  few  must  support  others  as  well  ^s  them- 
selves. 

This  does  not  prove  that  women's  wages  were  and 
are  satisfactorily  high.  It  does  prove  that  they  are 
not  generally  working  for  less  than  a  living  wage,  and 


PROBLEMS  OF  EMPLOYMENT  117 

it  invalidates  the  argument  that  generally  they  are  op- 
pressed by  their  employers  and  that  the  industries  in 
which  they  work  are  "parasitic." 

It  appears  that  employers  generally — in  the  United 
States,  as  well  as  abroad — have  been  disposed  to  give 
the  experiment  of  a  minimum  wage  a  fair  chance;  to 
face  temjjorary  difficulties  in  the  expectation  of  the 
favorable  developments  which  may  come. 

16.  Caution  in  adopting  the  7mnimum  wage. — It 
cannot  be  questioned  that  the  policy  of  the  minimum 
wage  is  more  difficult  of  wise  formulation  and  more 
difficult  of  wise  or  effective  administration  than  almost 
any  other  of  the  industrial  policies  of  modern  govern- 
ments. 

It  is  not  unlikely  that  Massachusetts  has  marked 
the  wisest  course,  as  she  has  in  so  many  other  questions 
of  industrial  control.  The  possibilities  of  harm  are 
certainly  least  where  just  standards  of  pay  are  de- 
termined by  the  most  capable  experts  available,  and 
are  then  enforced  by  an  influence  no  less  powerful  and 
no  more  rigid  than  a  w^ell-informed  public  opinion. 

17.  Present  regulations  beneficial  as  a  whole. — Ex- 
cept that  perhaps  they  are  rather  less  radical,  Ameri- 
can regulations  of  the  labor  of  women  and  children  are 
substantially  like  those  of  foreign  countries.  Taken 
as  a  whole,  they  doubtless  have  made  for  the  welfare 
of  the  people,  even  for  the  industry  of  the  present 
generation. 

18.  New  7'i.s'IiS  in  modern  indnstri/. — The  (iesire  to 
improve  our  industrial  conditions  should  not  blind  us 


118        BUSINESS  AND  THE  GOVERNMENT 

to  the  fact  that  our  present  conditions  are  far  better 
than  those  of  any  previous  age.  How  many  people 
reahze,  for  example,  that  in  the  golden  age  of  English 
literature,  Queen  Elizabeth  and  King  James  ate  meals 
without  forks,  using  their  fingers,  and  that  they  had 
no  bathtubs?  But  the  mere  fact  that  improvements 
liave  been  made  is  no  reason  why  we  should  not  strive 
still  more  energetically  for  .further  improvement. 
The  modern  laborer  lives  and  works  under  gi-eat 
hazards  of  a  type  quite  different  from  those  of  former 
times.  Unemployment,  for  example,  with  its  stop- 
page of  income  was  formerly  very  infrequent,  and 
when  by  unusual  chance  or  by  the  turn  of  the  seasons, 
wages  might  be  suspended,  a  cottage  with  a  plot  of 
ground,  with  rights  of  common,  would  cany  the  fam- 
ily along.  Xor  w^ere  there  so  many  industrial  acci- 
dents causing  disablement,  maiming  or  death  before 
the  era  of  powerful  machinery.  It  is  quite  possible, 
liowever,  that  the  accidents  and  the  utter  ignorance  of 
sanitation  and  disinfection  on  land  and  sea  caused 
even  more  illness  and  death. 

19.  Laborer  and  insurance. — The  well-to-do  in 
these  days  habitually  resort  to  insurance  as  a  means  of 
covering  their  exceptional  losses  of  all  kinds.  In  this 
way  they  help  themselves  thru  innumerable  financial 
misfortunes. 

Insurance  should  be  even  more  helpful  to  the  la- 
borer. It  is  not  merely  the  best  protection  against 
privation  thru  mischance,  it  is  the  only  sure  protection 


PROBLEMS  OF  EMPLOYMENT  119 

• 
reasonably  to  be  considered  or  advised.  Insurance 
is  a  wise  investment  for  part  of  a  laborer's  savings. 
It  gives  nothing  to  those  who  do  not  need  it;  to  those 
who  do,  it  provides  assistance  more  complete  than  they 
could  possibly  have  provided  for  themselves,  and  that 
at  a  cost  small  for  each  because  paid  for  by  all.  And 
yet  wage  earners,  speaking  broadly,  seldom  seek  in- 
surance, partly  because  they  do  not  appreciate  its 
benefits,  partly  because  they  lack  money. 

20.  Social  insurance. — All  insurance  is  social  by  na- 
ture, but  the  expression  "social  insurance"  has  come  to 
mean  insurance  provided  or  administered  under  pub- 
lic authority  for  the  great  body  of  the  people,  practi- 
cally all  wage-earners.  Then  too,  it  is  provided  for 
its  beneficiaries  at  a  charge  less  than  its  full  cost  so 
that  either  society  as  a  whole  or  some  social  group  hke 
employers  bears  part  or  all  of  the  expense. 

Such  insurance  ordinarily  provides  against  several 
of  the  commonest  misfortunes :  death,  industrial  acci- 
dents, sickness,  invalidity,  unemployment.  Social  in- 
surance is  a  new  policy  but  one  that  is  rapidly  spread- 
ing. 

21.  Life  insurance. — Fraternal  societies  and  mu- 
tual insurance  associations  provide  a  small  amount  of 
life  insurance  for  the  wage  earners.  The  American 
"industrial"  companies  sell  very  large  amounts  to  the 
same  classes,  having  now  outstanding  nearly  42,000,- 
000  policies  for  an  amount  of  nearly  $6,000,000,000. 
Insurance  which  is  carried  out  by  means  of  assess- 


120        BUSINESS  AND  THE  GO*\'ERNMENT 

ment  is  frequently  unsound,  and  other  insurance  for 
workers  is  costly  because  collection  methods  are  ex- 
pensive. 

Governments  have  done  little  on  the  whole  to  pro- 
vide simple  life  insurance  in  amounts  and  on  terms 
possible  for  the  average  wage  earner.  A  beginning 
has  been  made  in  Great  Britain,  France  and  a  few 
other  countries,  tho  there  are  differing  opinions  re- 
garding its  advantages  to  society.  Italy  has  assumed 
the  monopoly  of  all  life  insurance.  Massachusetts 
has  fostered  insurance  thru  publicly  supervised  sav- 
ings banks.  Wisconsin  has  begun  the  issue  of  policies 
directly  by  the  state.  None  of  these  voluntary  sys- 
tems has  accomplished  much.  If  the  cost  of  collection 
from  the  wage  earners  could  be  lessened  much  more 
could  be  accomplished  by  private  companies. 

22.  Worhmcn's  compensation. — Insurance  against 
industrial  accidents,  commonly  called  workmen's  com- 
pensation, is  the  most  widely  practiced  and  most  gen- 
erally approved  form  of  social  insurance.  First 
brought  into  operation  in  Germany  in  1884,  since  then 
it  has  spread  to  nearly  every  advanced  industrial  re- 
gion of  the  world,  to  every  quarter  and  corner  of  Eu- 
rope, to  Australasia,  Africa,  Canada,  Japan,  Mexico, 
South  America,  Cuba.  Tardily  accepted  in  the 
United  States  in  1911,  within  the  brief  space  of  nine 
years  it  has  passed  to  forty-five  of  the  states  and  terri- 
tories, which  have  more  than  seven-eighths  of  the  pop- 
ulation of  the  country  and  an  even  greater  proportion 
of  the  industrial  employment. 


PROBLEMS  OF  EMPLOYMENT  121 

It  has  already  been  intimated  that  altho  many  acci- 
dents are  caused  by  carelessness  of  the  workers,  on  the 
whole,  they  should  be  looked  upon  as  ^practically  un- 
avoidable. It  is  not  in  human  nature  never  to  relax 
attention  even  when  a  second  of  carelessness  may 
mean  personal  injury.  Safety  devices  and  attention 
will  prevent  many  accidents,  but  on  the  whole,  most 
accidents  are  to  be  looked  upon  as  a  normal  risk  of 
the  industry  and  therefore  chargeable  to  the  costs. 

23.  Ernploijers'  Uabiliti/. — Formerly  the  employers' 
liability  laws  were  intended  to  hold  employers  to  some 
measure  of  liability  for  injuries  received  in  their  serv- 
ice. In  practice,  however,  they  paid  for  liability  in- 
surance and  the  insurance  companies  with  their  able 
legal  staffs  and  vast  resources  brought  it  about  that 
very  few,  probably  not  more  than  one  in  five,  received 
any  compensation,  and  he  usually  little.  In  conse- 
quence of  this  fact  largely,  the  principle  has  been 
changed  as  indicated. 

Altho  tlie  laws  vary  greatly  in  the  seventy-odd  dif- 
ferent statutes  covering  this  field,  there  are  three  es- 
sentials of  a  workmen's  compensation  law  that  may 
be  mentioned. 

L  All  orchnary  questions  of  personal  responsibility 
for  accidents  must  be  waived  and  awards  nmst  be 
made  for  all  but  the  most  unusual  injuries. 

2.  The  sums  to  be  i)aid  for  the  different  injuries 
must  be  fixed  in  advance  by  law. 

♦3.  The  law  must  be  simple,  prompt  and  inexpensive 
in  its  administration. 


122        BUSINESS  AND  THE  GOVERNMENT 

As  reasonable  supplements  to  these  provisions,  the 
employer  is  released  from  any  other  liability  for  per- 
sonal injuries  to  his  employes,  and  the  employe  is 
often  safeguarded  by  a  requirement  that  the  prompt 
and  full  realization  of  his  limited  awards  be  assured 
him. 

24.  Scope  of  compensation  laws. — There  is  a  strong 
tendency  everywhere  to  limit  the  compensation  laws 
to  the  most  dangerous  occupations  such  as  manufac- 
turing, mining,  transportation,  building,  and  to  omit 
agriculture,  domestic  and  personal  service. 

In  most  jurisdictions  only  accidents  are  compen- 
sated, but  in  some,  notably  in  the  United  Kingdom 
and  in  some  other  British  territories,  express  provi^ 
sion  is  made  for  occupational  diseases.  Commonly 
benefits  are  forfeited  only  by  serious  or  wilful  fault  of 
the  injured  in  bringing  about  the  accident. 

25.  Limited  benefits. — In  the  way  of  broad  gen- 
eralization and  very  rough  averaging,  it  might  be  said 
that  the  total  losses  thru  injuries  are  halved,  the 
benefits  covering  one  half  and  the  sufferers  enduring 
the  other.  But  there  are  hundreds  of  modifications 
of  this  principle  and  departures  from  it.  There  are 
the  most  varied  provisions  for  temporary,  permanent, 
partial  and  total  disabilities,  for  death,  and  for  the 
benefit  of  the  several  classes  of  dependents  who  may 
be  left  at  death,  besides  usually  a  modest  allowance 
for  the  burial  of  those  fatally  injured. 

Nearly  everywhere  provisions  are  made  for  the 
curative  treatment  of  the  injured.     And,  as  the  com- 


PROBLEMS  OF  EMPLOYMENT  123 

mon  interest  of  employer  and  employe  in  the  prompt- 
est and  completest  possible  cure  is  recognized,  these 
provisions  are  made  more  generous  in  amounts  or  in 
duration,  or  in  both. 

26.  Assurance  of  benefits. — Commonly,  and  in 
most  American  states,  benefits  awarded  are  given 
some  special  security,  as  prior  lien  against  employers, 
and  exemption  from  attachment  or  other  similar  proc- 
ess. American  employers,  and  foreign  ones  too,  are 
usually  required  to  insure  their  liabilities  in  some 
way;  in  the  readily  available  commercial  insurance 
companies,  in  specially  constituted  mutual  associa- 
tions, or  in  accident  funds  carried  by  the  state. 

27.  Simple  administration. — In  most  jurisdictions 
administration  of  the  laws  is  simplified  by  committing 
it  to  special  boards  or  commissions,  which  are  free 
from  the  technicalities  of  the  law  courts  and  are  both 
allowed  and  required  to  proceed  as  informally  and 
summarily  as  may  be  consistent  with  prompt  and  sub- 
stantial justice. 

28.  Results  of  workmen's  compensation. — The  ap- 
parent results  of  the  workmen's  compensation  systems 
are  several  very  great  gains.  Injuries  are  looked 
after  much  more  promptly  and  carefully,  so  that  their 
consequences  are  much  less  serious.  The  better  medi- 
cal care  has  done  a  great  deal  to  mitigate  the  suf- 
ferings of  the  injured,  and  the  cash  benefits  relieve 
their  families  and  generally  reduce  the  evil  conse- 
quences of  uncompensated  injuries.  Much  the  best 
of  all  are  the  measures  for  prevention  of  accidents. 


124        BUSINESS  AND  THE  GOVERNMENT 

The  most  vigorous  and  helpful  American  movement 
for  "safety  first"  is  unmistakably  greatly  stimulated 
by  the  compensation  laws. 

The  cost  for  employers  has  been  considerably 
greater  than  they  had  to  carry  under  the  old  liability 
laws,  varying  Widely,  from  a  minor  fraction  of  one 
per  cent  of  payroll  in  such  occupations  as  silk  manu- 
facturing to  10  per  cent  or  more  in  some  of  the  most 
dangerous  forms  of  construction. 

29.  Health  insurance. — The  losses  caused  by  sick- 
ness among  working  people  are  much  greater  than 
losses  thru  industrial  accidents,  being  computed  for 
the  United  States  at  no  less  than  $1,750,000,000 
yearly.  Yet  comparatively  little  has  been  done  by 
way  of  insurance  or  other  provision  against  these 
losses.  Fraternal  and  mutual  associations,  labor 
unions,  employers'  establishment  funds  and  private 
commercial  insurance  have  done  a  little;  but  in  the 
United  States  all  of  these  together  do  not  cover  much 
more  than  one  per  cent  of  the  computed  losses.  Ger- 
many early  recognized  the  gravity  of  her  problem, 
and  one  year  before  organizing  workmen's  compensa- 
tion she  established  a  broad  system  of  compulsory  in- 
surance against  sickness.  Since  then  nine  other  E,u- 
ropean  countries  have  followed  her  example,  Austria, 
Hungary,  Great  Britain,  Russia,  and  five  smaller 
states.  In  the  United  States  for  some  few  years  now 
there  has  been  an  earnest  and  growing  agitation  for 
the  adoption  of  the  policy  here. 

30.  Field  and  scope  of  health  insurance. — Gener- 


PROBLEoVIS  OF  EMPLOYMENT  125 

ally  the  scope  of  health  insurance  is  approximately 
as  broad  as  that  of  workmen's  compensation;  even 
broader  in  so  far  as  it  often  includes  others  than 
wage-earning  employes. 

The  sickness  covered  includes  not  only  industrial 
diseases  but  general  maladies  also,  and  commonly  the 
confinements  of  women.  Indeed,  Italy,  not  having 
gone  so  far  as  a  general  system  of  health  insurance, 
has  made  special  provisions  for  women  lying-in. 

31.  Benefits  under  health  insurance. — In  a  general 
way  the  benefits  under  health  insurance  resemble  those 
under  workmen's  compensation.  ^Medical  care  is  pro- 
vided, with  more  or  less  generous  allowances  for  med- 
ical supplies,  trusses,  crutches,  and  the  like.  Often 
there  is  an  award  for  burial.  With  some  important 
limitations,  there  are  everywhere  cash  benefits,  some- 
times half  of  wages,  as  in  Germany,  sometimes  a 
higher  proportion,  as  in  Xorway,  sometimes  modest 
flat  sums,  as  in  Great  Britain. 

32.  Sources  of  funds. — On  the  assumption  that  en- 
vironment of  employment,  general  conditions  for 
which  the  state  is  responsible,  and  the  personal  con- 
duct of  the  insured  combine  to  produce  disease,  costs 
are  usually  apportioned  to  the  emj^loyer,  if  there  be 
one,  the  insured  and  the  public  treasury.  Perhaps 
most  often  employer  and  insured  pay  equally,  while 
the  state  pays  a  smaller  sum  than  either. 

33.  Administration  and  its  peculiar  difficulties. — 
Administration  cannot  be  made  as  simple  in  health  in- 
surance as  in  workmen's  compensation  for  accidents. 

XXIV— 10 


126        BUSINESS  AND  THE  GOVERNMENT 

Accordingly,  much  reliance  is  placed  upon  whatever 
trade  or  fraternal  associations  there  may  be  found 
already  in  existence  and  adaptable  to  the  work  in 
hand;  or  special  bodies  of  the  insured  are  organized 
specifically  for  the  purpose  of  the  insurance. 

For  various  reasons  difficulties  have  developed,  es- 
pecially in  the  United  Kingdom,  in  the  selection 
of  the  medical  staffs  and  the  general  organization  of 
the  medical  care.  It  has  proved  very  difficult  to 
reconcile  professional  jealousies  and  the  whims  and 
prejudices  of  the  sick  with  the  necessary  conditions 
of  solvency  in  the  funds  and  practical  efficiency  in 
their  use. 

34.  Results  of  health  insurance. — Even  in  Ger- 
many and  other  continental  countries  where  the  sys- 
tems have  had  time  to  show  natural  results  opinions 
are  widely  divided  regarding  the  sum  and  extent  of 
the  benefits.  It  seems  probable  that  thru  the  mass- 
ing of  large  funds  it  has  been  possible,  thru  public 
loans  to  build  certain  institutions  such  as  hospitals, 
sanatoriums  and  the  like,  more  easily  than  would  have 
been  possible  otherwise.  In  his  special  investigations 
of  German  social  insurance  Dr.  Hoffman,  Vice  Presi- 
dent and  Statistician  of  the  Prudential  Insurance 
Company  of  America,  declares  that  under  Germany's 
laws  the  expenditures  on  account  of  sickness  have  in- 
creased enormously  and  that  apparently  compulsory 
sick  insurance  has  a  strong  tendency  towards  increas- 
ing malingering,  as  well  as  towards  grossly  exagger- 
ating minor  complaints.     In  spite  of  the  insurance  or 


PROBLEMS  OF  EMPLOYMENT  127 

in  consequence  of  it  the  average  annual  sickness  loss 
for  males  in  Germany  is  more  than  9.2  days,  in  Aus- 
tria 9.5  days  whereas  in  Boston  it  is  only  6.5  days  and 
in  Xew  York  only  7  days.  There  seems  to  be  no  evi- 
dence to  j)rove  that  compulsory  sickness  insurance 
has  brought  about  a  measurable  decrease,  if  any  at  all, 
in  mortality  or  degenerative  diseases.  Even  tho 
there  has  been  on  the  whole  an  improvement  in  the 
general  health  of  Germany  where  there  is  social  insur- 
ance, the  advancement  of  the  United  States  has  been 
fully  as  satisfactory,  and  even  more  so  in  regard  to 
tuberculosis  and  infant  mortality.  The  improvement 
then  should  be  ascribed  rather  to  general  progress  in 
intelligence  and  public  education  and  care  along  these 
lines  than  to  health  insurance. 

35.  Insurance  against  invalidity  and  old  age. — 
Quite  distinct  from  accidental  injuries  and  from  dis- 
ease is  that  invalidity,  or  incapacity  for  self-support, 
which  may  come  in  earlier  years  but  comes  with  very 
sad  frequency  in  old  age.  Figures  too  gloomy  for 
comfortable  reading  have  been  prepared  to  show  what 
great  numbers  of  working  people,  in  this  age  of 
strenuous  demands  upon  workers,  are  early  incapac- 
itated for  self-support  and  pass  into  a  period  of  com- 
plete or  partial  dependence.  Ilei-e  and  there,  within 
narrow  fields,  adequate  remedy  has  been  provided  by 
great  corporations  and  other  wealthy  employers  who 
have  pensioned  their  aged  and  incapacitated  employes. 

Voluntary  systems  of  saving  under  government 
supervision  or  administration  have  jDroved  insufficient 


128        BUSINESS  AND  THE  GOVERNMENT 

in  Great  Britain,  as  in  Massachusetts  and  Wisconsin, 
if  these  states  may  be  cited.  Substantially  the  same 
have  been  the  results  in  lands  where  government  has 
undertaken  to  add  to  the  sums  which  may  be  laid  up 
by  the  poor,  as  in  France,  Belgium  and  Italy. 

36.  Compulsory  old  age  insurance. — By  an  act  of 
1889,  not  many  years  later  than  her  laws  for  work- 
men's compensation  and  health  insurance,  Germany 
established  a  system  of  compulsory  insurance  against 
invalidity  and  old  age,  making  it  thus  one  of  the  three 
parts  of  her  political  plan  of  social  insurance.  In  its 
most  general  aspects  the  third  system  is  like  the  other 
two.  Employers,  beneficiaries  and  the  state  con- 
tribute to  funds  which  are  administered  by  district  as- 
sociations under  governmental  supervision.  France 
and  a  few  smaller  countries  of  Europe  have  somewhat 
similar  systems. 

37.  Old  age  pensions. — As  distinguished  from  old 
age  insurance,  to  the  support  of  which  beneficiaries 
contribute,  old  age  j^ensions  are  commonly  under- 
stood to  be  payments  without  previous  contributions 
by  the  pensioners.  Old  age  pensions  of  this  character 
are  provided  by  laws  in  France,  the  United  Kingdom, 
Denmark,  Belgium,  Australia,  New  Zealand,  Ari- 
zona and  Alaska.  They  are  variously  limited,  and  the 
payments  are  usually  very  small.  For  these  reasons 
their  beneficial  results  have  not  been  marked.  For 
us  the  recent  adoption  of  this  most  radical  policy  in 
the  United  States  has  a  peculiar  interest  whichever 
way  it  may  result.     It  appears  that  the  Arizona  law 


PROBLEMS  OF  EMPLOYMENT  129 

is  in  a  fair  way  to  be  finally  adjudged  unconstitu- 
tional. 

38.  Insurance  against  nnemploymeni. — The  suf- 
ferings of  the  working  classes  thru  the  involuntary 
idleness  of  their  breadwinners  are  too  well  known  to 
need  emphasis.  There  are,  however,  extraordinary 
difficulties  in  devising  even  a  moderately  helpful 
method  of  insurance  against  unemplo^Ttnent.  Many 
labor  unions  by  their  out-of-work  benefits  may  be  said 
to  have  provided  a  sort  of  insurance;  public  grants 
in  addition  to  such  benefits,  first  given  in  the  Belgian 
city  of  Ghent  in  1901  and  thereafter  in  many  other 
European  cities,  mark  the  introduction  of  a  govern- 
ment social  insurance  against  unemployment. 

Such  voluntary  insurance  against  unemployment 
has  not  developed  widely  enough  to  have  an  appre- 
ciable effect  in  reducing  the  evil  against  which  it  has- 
been  directed.  Moreover,  in  the  judgment  of  many, 
if  not  most  publicists,  it  is  dangerous  in  operation  and 
likely  to  do  great  harm  at  times.  This  fact  does  not 
prevent  the  state  from  direct  action  in  the  way  of 
providing  work  in  times  of  industrial  depression. 
That  action  seems  clearly  advisable  at  times.  More- 
over, it  is  a  custom  often  followed  by  private  employ- 
ers in  times  of  depression,  to  do  work  without  profit, 
often  even  at  a  tem})orary  loss  in  order  both  to  avoid 
suffering  and  to  maintain  the  organization  at  its  full 
efficiency. 

39.  Compulsory  insurance  against  unemployment. 
— Compulsory   social   insurance    against    unemploy- 


130        BUSINESS  AND  THE  G0VERN:\IENT 

ment,  after  a  brief  and  unsuccessful  trial  in  the  Swiss 
city  of  St.  Gall,  has  come  to  a  recent  broader  trial 
under  the  British  National  Insurance  Act  of  1911. 
It  applies  to  some  2,500,000  employes  in  the  mechani- 
cal trades  as  well  as  to  a  considerable  number  of  less 
well  organized  trades  and  occupations.  Employers, 
employes  and  the  stat€  contribute  the  funds,  which 
may  be  drawn  upon  to  provide  benefits  of  not  more 
than  seven  shillings  a  week  for  a  period  of  not  more 
than  fifteen  Aveeks  in  any  year.  There  are  very  elab- 
orate conditions  laid  down  for  the  prevention  of 
frauds.  Opinions  as  to  the  results  of  this  scheme  are 
not  uniform.  Labor  organizations  have  argued  that 
it  has  a  paui^terizing  tendency  and  there  has  been  a 
continuous  protest  from  certain  types  of  workers 
against  the  stamp  sale  method  of  collecting  the  so- 
called  contributions — the  premiums. 

40.  General  results  and  prospects  of  social  insur- 
ance.— Far  more  important  evidence  of  the  practical 
value  of  unemployment  insurance  was  given  by  the 
post-war  unemployment  allowance  system  in  Great 
Britain.  Under  this  scheme,  which,  by  the  way  sus- 
pended payments  but  not  collections  under  the  In- 
surance Act  of  1911,  civilians  and  ex-service  men 
ranked  alike  except  as  to  the  length  of  time  during 
which  they  were  entitled  to  the  allowances.  The 
original  intention  was  that  for  civilian  workers  a  pe- 
riod of  thirteen  weeks  would  be  the  longest  allow- 
able and  all  such  unemployed  would  return  to  tlie 
provisions  of  the  Insurance  Act  on  November  24, 


PROBLEMS  OF  EMPLOYMENT  131 

1919.  Ex-service  men  were  to  be  allowed  to  draw 
the  Insurance  "doles"  for  any  period  not  exceeding 
twenty-six  weeks  during  the  first  year  after  demobili- 
zation. Conditions  that  developed  later,  however, 
warranted  the  continuation  of  the  scheme  to  a  later 
date.  The  weekly  rates  of  these  post-war  allowances 
were  as  follows :  adults,  male  24s. ;  adults,  female,  20s. ; 
dependent  child,  first  under  fifteen  years,  6s. ;  each  suc- 
ceeding child,  3s.;  juveniles  (over  fifteen  and  under 
eighteen  years  of  age),  male,  12s.;  female,  10s.  To- 
ward the  end  of  1920  the  British  Ministry  of  Labor 
stated  officially  that  the  results  obtained  were  con- 
sidered satisfactory  by  the  government.  Inmiedi- 
ately  after  the  war  England  faced  a  serious  social 
condition.  Industries  converted  to  a  war  basis  were 
no  longer  needed.  Reconstruction  to  peace  time  work 
had  not  taken  place.  Unemployment  reached  as- 
tounding figures  and  prophesies  of  social  upheaval 
were  of  every  day  occurrence.  During  1919  the  un- 
employed civilians  reached  a  total  of  758,982  and 
409,959  ex-service  men  were  out  of  work.  In  spite 
of  these  conditions  England  avoided  the  threatened 
storm  and  conditions  of  unemployment  have  been 
steadily  improving  ever  since.  In  spite  of  the  occur- 
rence of  a  few  sporadic  riotous  demonstrations,  the 
opinion  is  freely  expressed  both  in  government  circles 
and  by  labor  leaders  that  tlie  unemployment  allow- 
ances were  of  prime  imjjortance  in  preventing  social 
unrest  during  the  most  trying  period  of  national  re- 
construction. 


132         BUSINESS  AND  THE  GOVERNMENT 

So  far  in  spite  of  the  rather  long  experiences  in 
Germany,  Austria  and  other  continental  countries, 
the  results  of  social  insurance  still  seem  decidedly 
doubtful.  There  have  been  certain  developments 
foretold  in  fact  by  thoughtful  students  of  such  sub- 
jects in  Germany  itself  thirty-five  years  ago  that  are 
not  to  be  welcomed,  malingering,  increased  complaints 
of  minor  sickness,  considerable  weakening  of  self-reli- 
ance, and  an  occasional  handicap  for  industry.  On 
the  other  hand,  doubtless  in  many  individual  cases 
beneficial  results  can  be  seen  and  as  has  already  been 
indicated  tire  government  has  been  able  to  make  pub- 
lic use  of  the  large  funds  coUected  in  connection  there- 
with. It  seems  probable  that  when  the  experiences 
of  the  war  come  to  be  fully  known  the  use  of  funds 
will  be  found  to  have  been  at  times  diverted  from  the 
original  purpose  but  of  that  there  has  been  as  yet 
no  information  available.  In  the  United  States  at 
present  there  is  a  sharp  conflict  of  opinion  and  activi- 
ties. Certain  social  reform  organizations  are  actively 
advocating  social  insurance  even  that  of  a  compulsory 
type,  basing  their  arguments  largely  upon  the  alleged 
results  of  such  insurance  in  Germany  and  other  con- 
tinental countries  as  well  as  in  Great  Britain.  On 
the  other  hand,  there  stand  positively,  not  to  say  bit- 
terly opposed  to  all  forms  of  compulsoiy  insurance, 
the  American  Federation  of  Labor  and  practically 
all  the  other  conservative  and  yet  not  reactionary 
labor  groups,  together  with  other  important  organiza- 
tions which  have  been  in  the  habit  of  promoting  social 


PROBLEMS  OF  EMPLOYMENT  133 

welfare  work  in  connection  with  labor  groups  and 
the  wage-earning  class  generally. 

41.  Federal  war  compensation  laws. — The  statutes 
of  the  United  States  provide  compensation  to  Federal 
employes  injured  by  accident  and  the  principle  has 
been  given  enormous  extension  in  recent  legislation 
growing  out  of  the  war.  The  first  step  was  the  provi- 
sion for  compulsory  insurance  against  accident  of  all 
seamen  on  American  vessels,  which  went  into  effect  in 
June,  1917.  Rates  for  such  insurance  w^hich  is  ad- 
ministered by  the  War  Risk  Insurance  Bureau  of  the 
Treasury  Department  vary  with  the  hazards  growing 
out  of  the  war  for  different  voyages.  The  insurance 
was  a  charge  against  the  owners  of  the  vessel. 

Much  more  impressive  was  the  extension  of  the 
compensation  principle  to  the  military  and  naval 
forces  of  the  United  States.  Generous  allowances  in 
the  case  of  death  or  injury  in  the  service  are  provided 
by  law.  The  indemnities  established  were  payable 
monthly.  Pensions  of  course  are  not  new,  and  while 
the  recent  legislation  bears  a  considerable  resemblance 
to  the  disability  pensions  of  former  days,  yet  the  spirit 
in  which  the  law  was  conceived  and  the  methods  by 
which  rates  are  fixed  show  clearly  the  influence  of  com- 
pensation legislation.  These  indemnities  were  part  of 
a  general  scheme  for  the  welfare  of  the  soldiers  and 
sailors  of  the  United  States,  in  which  were  included 
allotments  from  the  soldier's  pay,  in  some  cases  com- 
pulsory, and  additional  amounts  as  allowances  to  the 
dependent  families  of  the  fighting  men.     These  need 


134        BUSINESS  AND  THE  GOVERNMENT 

not  concern  us  here,  but  a  brief  notice  may  well  be 
taken  of  the  fourth  feature  of  the  legislation — the 
provisions  for  soldiers'  and  sailors'  insurance. 

42.  Soldiers'  and  sailors'  insurance. — In  order  to 
encourage  the  officers  and  enlisted  men  of  the  military 
and  naval  forces  of  the  United  States  to  provide  for 
the  future  of  their  dependents  and  themselves,  the 
government  issued  insurance  to  a  maximum  amount 
of  $10,000,  on  a  yearly  reviewable  term  basis.  Pre- 
miums are  low  because  the  insurance  is  furnished  at 
cost  on  the  basis  of  the  American  Experience  Table 
of  Mortality,  are  payable  monthly  and  do  not  include 
any  charge  for  medical  examination  or  the  cost  of  ad- 
ministration of  the  business.  Furthermore,  the  extra 
risk  involved  in  military  service  was  assumed  by  the 
United  States  Government.  The  Government  con- 
tinues the  insurance  after  the  insured's  discharge  from 
the  service  for  a  period  of  five  years  at  the  same  rates 
as  before.  During  this  period  of  five  years  after  the 
discharge  the  insured  has  the  privilege  of  changing 
the  original  policy  into  a  permanent  form  of  insurance 
without  being  required  to  submit  to  a  medical  exami- 
nation. The  new  forms  are  now  issued.  The  gov- 
ernment will  continue  to  be  the  insurer  and  the  rates 
charged  are  estimated  to  be  about  20  per  cent  less  than 
those  charged  for  like  insurance  by  standard  private 
companies.  Aside  from  the  cheapness  in  cost,  the 
government  policy  contains  practically  all  the  liberal 
provisions  which  are  found  in  policies  written  by  Old 
Line  Insurance  Companies.     One  outstanding  fea- 


PROBLEMS  OF  EMPLOYMENT  135 

ture  which  government  insurance  provides,  without 
cost,  is  payments  in  case  of  total  permanent  disabilit^^ 
This  disability  feature  is  exceptional  as  compared 
witli  several  comj^anies  as  the  policy  may  become  pay- 
able on  account  of  total  permanent  disability,  irre- 
spective of  the  age  at  which  the  insured  becomes  dis- 
abled, whereas  private  companies  whose  policies  con- 
tain a  disability  clause  in  no  event  extend  this  feature 
beyond  the  age  of  sixty-five  years. 

It  is  possible  for  those  who  have  allowed  their  gov- 
ernment insurance  to  lapse  to  become  reinstated  by  the 
payment  of  two  monthly  premiums,  that  is  the  pre- 
mium for  the  month  it  was  lapsed  and  for  the  month 
it  is  reinstated.  If  reinstatement  is  made  within 
eighteen  months  after  discharge  a  written  statement 
that  the  insured  is  in  as  good  health  as  when  he  was 
discharged  is  necessary.  In  case  the  insured  has 
failed  to  reinstate  his  insurance  within  eighteen 
months  after  the  date  of  discharge  he  may  do  so  up  to 
January  1,  1921,  provided  he  can  furnish  evidence  of 
insurability,  that  is,  pass  a  medical  examination.  Of 
the  four  million  and  one-half  of  men  and  women 
(nurses,  etc.)  who  were  entitled  to  take  insurance, 
policies  were  written,  it  is  estimated,  for  95  per  cent. 
The  insurance  I'isk  assumed  by  tlie  government  was  in 
excess  of  forty  billions  of  dollars,  doubling  the  amount 
of  life  insurance  in  force  in  the  world.  The  average 
policy  was  reported  to  be  slightly  in  excess  of  eight 
thousand  dollars,  which  indicates  that  most  of  the 
applicants  took  advantage  of  the  maximum  permitted. 


136        BUSINESS  AND  THE  GOVERNMENT 

Since  the  armistice  approximately  75  per  cent  of  the 
insurance  has  lapsed  and  for  this  reason  the  govern- 
ment has  made  very  liberal  rulings  for  the  insured  to 
reinstate  his  insurance. 

REVIEW 

"What  are  the  main  provisions  regarding  the  hours  and  times  of 
employment  of  women  and  children?  How  do  they  differ  from 
that  of  the  men? 

Is  the  regular  employment  of  children  ever  to  be  commended 
as  a  means  of  preventing  idleness  and  as  a  means  of  encouraging 
industrious  habits  ? 

Does  the  employment  of  women  and  children  have  any  appre- 
ciable effect  upon  men's  wages  ?     Consider  this  question  in  detail. 

What  is  the  special  need  for  delay  and  for  caution  in  the  adop- 
tion of  further  minimum  wage  laws  in  the  United  States  ? 

In  what  ways  does  the  article  of  the  United  States  Constitu- 
tion giving  the  central  government  the  power  to  regulate  interstate 
commerce  affect  the  labor  contract? 

What  are  the  reasons  why  compensation  to  workmen  for  acci- 
dents should  be  made  a  burden  upon  the  industrial  plants  con- 
cerned ? 

What  is  meant  by  the  Industrial  Revolution  in  England? 
Compare  briefly  the  times  before  and  after  the  revolution. 

Indicate  the  character  of  the  industrial  commissions  established 
in  the  United  States  and  their  duties. 

Wliat  are  the  benefits  and  evils  of  industrial  insurance? 

Define  workmen's  compensation  and  outline  the  main  provisions 
of  compensation  laws. 

What  are  the  main  objections  to  old  age  insurance?  To  insur- 
ance against  unemployment? 


CHAPTER  VII 

PROBLEMS  OF  EMPLOYMENT   (Continued) 

1.  Labor  organizations. — So  significant  has  been 
the  part  played  in  all  problems  of  employment,  even 
those  intimately  connected  with  governmental  activi- 
ties, by  voluntary  organizations  of  laborers,  and  so 
enormously  increased  was  the  exercise  of  this  power 
both  in  Great  Britain  and  in  the  United  States  by 
the  events  of  the  great  war,  that  a  brief  account  re- 
garding their  organization  and  activities  should  pre- 
cede further  discussion  of  the  work  of  government  in 
that  field. 

2.  Labor  unions ;  Syndicalism  (/.  W.  W.)  ;  Social- 
ism; Bolshevism. — In  current  discussions,  even  at 
times  in  the  public  press,  so  much  confusion  exists 
regarding  the  various  types  of  activities,  largely  pro- 
moted by  the  wage  earners,  that  it  is  desirable  to  em- 
ploy careful  discrimination.  Grave  injustice  is  often 
done  thru  failure  to  discriminate. 

The  labor  union  is  a  voluntary  association  of  work- 
men formed  for  the  purpose  of  promoting  the  interests 
of  its  members.  Tho  frequently  associated  with  the 
well-known  trade  or  craft  guilds  of  mediaeval  Europe, 
labor  unions  are  not  compara})le  to  them,  for  these 
were  associations  of  masters   rather  than  of  work- 

137 


138        BUSINESS  AND  THE  GOVERNMENT 

men  and  had  also  other  important  objects  besides 
the  industrial  advantage  of  their  members.  The  real 
trade  unions,  altho  they  began  in  the  eighteenth  cen- 
tury, acquired  no  special  significance  until  the  great 
inventions  and  discoveries  of  the  industrial  revolution 
late  in  the  eighteenth  and  early  in  the  nineteenth  cen- 
tury had  revolutionized  production  and  employment 
thru  the  establishment  of  the  factory  system  and  like 
methods  of  production.  Then  for  the  first  time  the 
laborer  was  thrown  upon  his  own  resources.  His 
position  was  no  longer  that  of  status.  It  was  fixed 
by  contract.  Under  former  conditions,  a  skilled  man 
with  the  certain  prospect  of  becoming  a  master-work- 
man could  bargain  satisfactorily  with  his  employer. 
When  hundreds  or  thousands  of  workmen  of  the  same 
class  are  so  organized  that  their  different  personalities 
do  not  come  to  the  direct  attention  of  their  responsible 
employer,  the  situation  is  entirely  changed.  Natu- 
rally, without  imputing  blame  to  any  one,  thru  the 
normal  difficulties  of  change  of  both  customs  and 
mental  attitude,  the  workmen  often  suffered.  Few 
provisions  were  at  first  made  for  the  comfort  or  health 
or  safety  of  the  workmen.  Neither  masters  nor  men 
knew  the  ways  of  safety.  Neither  knew  the  dangers 
of  the  new  industry.  The  workers  suffered  for  the 
common  ignorance.  Wages  were  low.  Hours  were 
long.  Conditions  needed  improvement.  Inevitably 
a  struggle  for  relief  began.  The  formation  of  the 
unions  naturally  followed.  These  unions  became 
organizations  within  the  separate  trades  or  crafts — 


PROBLEMS  OF  EMPLOYMENT  139 

trade  unions.  Altho  these  separate  unions  have  their 
distinct  organizations  and  work  independently  largely 
in  settling  their  own  problems,  it  is  natural  that  for 
their  larger  common  aims,  especially  in  the  way  of 
promoting  legislation  or  of  conducting  on  a  great  scale 
some  organized  movement  like  a  great  strike,  some 
further  organization  should  develop.  This  has  been 
brought  about  thru  federation.  In  the  United  States 
the  American  Federation  of  Labor  is  the  chief  repre- 
sentative. The  organization  is  strictly  a  federation  as 
its  name  implies.  The  various  local  unions  organized 
tliemselves  into  unions  of  the  craft  or  trade  and  these 
again  federated  into  the  central  organization,  the  rep- 
resentatives of  the  different  trades  being  their  national 
presidents.  The  Federation  is  strictly  a  representa- 
tive body  with  the  final  authority  even  in  such  matters 
as  strikes  resting  with  the  local  unions.  The  officials 
of  the  Federation,  contrary  to  a  common  opinion,  have 
no  dictatorial  power  over  the  individual  workmen  or 
their  acts. 

3.  Sj/ndicalism  {I.  W.  TV.). — With  the  accentua- 
tion of  working  men's  problems  and  the  growth  in 
power  of  the  trade  unions,  it  was  perhaps  not  unnatu- 
ral that  efforts  should  be  made  to  weld  into  one  organ- 
ization of  great  power  which  might  act  as  a  unit,  all 
types  of  working  men.  In  the  late  '70s  and  '80s  the 
Knights  of  Labor  developed  such  an  organization,  in- 
cluding men  and  women  also  from  various  trades,  an 
organization  which  numbered  at  one  time  probably 
800,000  members. 


140        BUSINESS  AND  THE  GOVERNMENT 

Of  late  years  the  Syndicalists,  in  France  especially, 
but  also  in  other  countries,  have  followed  out  the  same 
principles.  In  this  country,  the  Industrial  Workers 
of  the  World  are  organized  on  the  same  basis.  The 
organization  is  not  by  crafts  or  trades,  but  whole 
industries. 

In  these  later  organizations,  however,  certain  prin- 
ciples have  been  adopted  which  are  so  diametrically 
opposed  to  the  practices  of  the  ordinary  trade  unions, 
as  represented  by  the  American  Federation  of  Labor, 
that  trade  unions  form  an  effective  check  upon  the 
extreme  activities  of  the  Syndicalists.  The  Syndical- 
ists declare  an  inveterate  war  upon  capitalists,  assert- 
ing that  their  purpose  is  to  destroy  the  industries  until 
the  owners  are  ready  to  abandon  and  put  them  into 
the  hands  of  the  working  men  themselves.  To  accom- 
plish this  end  they  advocate  sabotage,  violation  of  con- 
tracts, the  breaking  of  the  laws.  Their  leaders  have 
been  repeatedly  arrested  and  punished  for  these  ille- 
gal practices,  including  personal  violence  and,  during 
the  period  of  the  war,  disloyalty.  On  the  other  hand 
the  trade  union  leaders  have  often  given  notable  in- 
stances of  loyal  service  and  hearty  cooperation  with 
the  governmental  authorities. 

4.  Socialism. — Inherently,  socialism  has  nothing 
directly  to  do  with  trade  unionism  or  syndicalism  as  a 
labor  movement,  but  so  large  a  proportion  of  syndical- 
ists and  so  many  individuals  among  trade  unions  have 
adopted  socialistic  doctrines  and  so  frequently  do  the 
ill-informed  group  all  together,  that  socialism  needs 


PROBLEMS  OF  EMPLOYMENT  141 

definition  here.  Socialism  is  primarily  a  political  pol- 
icy, that  the  Government  should  own  and  in  the  way 
deemed  best  to  itself,  manage  all  industries  requiring 
fixed  capital  to  any  large  extent.  It  has  had  many 
phases.  Its  various  leaders  have  adopted  various 
plans,  but  the  fundamental  political  idea  is  Govern- 
ment ownership  and  management  of  industry. 

This  governmental  policy  is  usually  based  upon  the 
economic  doctrine  most  clearly  formulated  by  Karl 
Marx  which  affirms  that  the  wages  which  capitalists 
pay  do  not  represent  the  full  value  of  the  product  of 
the  working  man's  labor  utilized  by  the  capitalist. 
There  is  a  remainder  which  the  capitalist  retains,  it  is 
thought.  This  "surplus  value"  as  Marx  calls  it, 
really  of  normal  right  belongs  to  the  working  man 
and  its  existence  inevitably  precipitates  class  war  be- 
tween capitalist  and  worker.  This  economic  doctrine 
is  generally  rejected  by  leading  economists  of  all 
countries  who  place  more  emphasis  upon  the  produc- 
tivity of  skilled  management  of  capital  itself  and  of 
the  influence  of  the  employers  than  do  the  Socialists. 
In  the  United  States  the  leading  trade  unionists  are 
among  the  most  active  opponents  of  socialistic  doc- 
trines. 

The  Bolshevists  and  Anarchists  represent  the  ex- 
treme types  of  opposition  to  formal,  strong,  govern- 
mental organization.  The  scientific  anarchists,  often 
personally  estimable  characters  with  pliilanthropic 
tendencies,  believe  that  voluntary  organizations 
formed  by  individuals  for  the  promotion  of  common 

XXIV— 11 


142         BUSINESS  AND  THE  GOVERNMENT 

aims,  private  and  public,  would  suffice  for  social  or- 
ganization without  the  repressive  influence  of  a  gov- 
ernment which  employs  police  methods.  With  these 
are  frequently,  perhaps  always,  associated,  whenever 
an  attempt  has  been  made  to  put  such  doctrines  into 
practice,  the  lawless,  the  criminals  and  others  who  feel 
the  restraining  hand  of  organized  government.  Such 
groups  and  such  doctrines  normally  find  their  most 
active  expression  in  times  of  revolution,  such  as  in  the 
French  Revolution  in  1789  and  the  present  Bolshevist 
regime  in  Russia.  Sovietism  means  literally  merely 
an  organization  of  societj^  by  industrial  " Soviets"  or 
councils,  quite  similar  to  the  theory  of  the  syndicalists, 
but  in  Russia  the  methods  followed  have  been  those 
of  revolutionary  brutal  tyranny. 

With  the  rise  of  modern  industry,  trade  unions  have 
gro^vn  with  remarkable  rapidity.  Now  they  number 
millions  of  well-organized  members;  they  have  large 
accumulated  funds;  many  leaders  of  high  character 
and  great  ability;  and  especially  since  their  patriotic 
activity  in  war  time,  they  have  enjoyed  a  large  meas- 
ure of  popular  approval,  weakened  in  many  cases  by 
the  domineering  inclinations  of  certain  influential 
leaders  and  individual  unions,  where  they  have  had 
the  advantage  in  the  industrial  situation  as  was  the 
case  during  and  immediately  after  the  Great  War. 
In  spite  of  the  widely  extended  organization,  however, 
the  unions  include  in  the  United  States  but  a  small 
minority  of  all  the  workers,  probably  not  far  from  10 
per  cent  of  those  who  work  for  wages.     Agricultural 


PROBLEMS  OF  EMPLOYMENT  143 

workers,  personal  and  domestic  servants,  from  the 
circimistances  of  their  employment,  are  not  widely 
organized. 

5.  The  relations  to  Government. — A  century  ago, 
the  organization  of  the  unions  in  Great  Britain  was 
looked  upon  as  a  public  menace.  The  British  Con- 
spiracy Laws,  enacted  chiefly  for  the  protection  of 
trade,  were  applied  to  them,  and  this  principle,  holding 
that  combinations  for  the  purpose  of  securing  higher 
wages  were  punishable  as  conspiracies,  prevailed  for 
nearly  one  hundred  years.  Later,  how^ever,  with  the 
growth  of  popular  political  power  and  the  better  un- 
derstanding of  conditions,  these  laws  were  gradu-ally 
done  away  with  until,  since  1906,  all  restrictions  upon 
the  natural  and  customary  activities  of  the  unions 
were  abolished  and  the  members  were  held  only  as 
individuals  for  any  personal  violations  of  law. 

In  the  L^nited  States,  where  the  British  common 
law  has  formed  the  basis  of  our  legal  system,  a  similar 
policy  was  instituted  but,  as  issues  of  gi'eat  importance 
had  not  earlier  arisen,  little  was  done  before  the  time 
of  the  Civil  War.  Following  tliat  period  labor  unions 
multiplied  rapidly  and  their  aggressive  policies  pro- 
voked sharp  hostility  in  employers  and  public  author- 
ities. Statutes  were  enacted  to  h-amper  their  activi- 
ties. Anti-monopoly  laws  were  drawn  so  as  to  cover 
combinations  of  laborers.  Finally,  the  Federal  Anti- 
Trust  Law,  the  so-called  Sherman  Act,  which  had 
been  passed  apparently  with  sole  reference  to  capital- 
istic combinations,  was  so  construed  by  the  United 


144        BUSINESS  AND  THE  GOVERNMENT 

States  Supreme  Court  as  to  cover  combinations  of 
laborers  also. 

As  the  methods  of  the  unions  have  become  less  ob- 
jectionable and  especially  as  the  "labor  vote"  has 
acquired  influence,  there  has  steadily  developed  a 
strong  movement  for  the  relaxation  of  many  of  the 
legal  restrictions.  Several  statutes  have  been  enacted 
to  limit  anti-conspiracy  laws  in  their  application  to 
labor  unions.  The  most  far-reaching  of  these  statutes 
is  the  Clayton  Act  of  1914  which  aims  at  exempting 
combinations  of  laborers  from  the  application  of  any 
and  all  Federal  anti-trust  laws. 

Under  present  conditions  the  existence  of  unions  is 
probably  not  seriously  threatened  altho,  if  they  were 
incorporated,  it  has  been  thought  by  some  authorities 
that  they  might  be  dissolved  under  the  anti-trust  act 
even  in  spite  of  the  apparent  safeguard  afforded  by 
the  Clayton  Act. 

The  union,  however,  is  rarely  attacked  in  the  courts ; 
it  is  rather  some  activity  of  the  union  that  comes  under 
court  action  such  as  the  strike,  the  boycott,  the  picket. 
This  distinction  should  be  kept  in  mind.  Every  union 
is  secure  in  its  existence  as  long  as  it  limits  itself  to 
purposes  of  whose  lawfulness  there  can  be  no  question. 
In  this  field  the  unions  have  undisputed  rights  to  ac- 
tivities of  great  importance  such  as  the  maintenance 
of  systems  of  mutual  benefits;  the  collection  and  dis- 
tribution of  information  of  trade  and  labor  conditions ; 
the  support  of  legislative  measures;  the  making  of 


PROBLEMS  OF  EMPLOYMENT  145 

collective  trade  agreements  with  employers  and  many 
others. 

The  strike  is  the  miion  man's  final  weapon  of  offense 
and  defense.  Upon  this  issue  American  courts  have 
been  divided.  The  New  York  Court  of  Appeals  has 
held  that  the  right  of  one  man  or  of  many  together  to 
quit  work  is  absolute  and  that  the  reasons  for  quitting 
cannot  be  questioned  by  others.  More  often  it  has 
been  held  that  the  quitting  of  work  may  be  permissible 
or  not  according  to  conditions  or  circumstances,  but 
motives  and  results  must  be  considered.  If  the  strike 
interferes  with  interstate  commerce,  it  is  unlawful. 
A  strike  designed  to  injure  an  employer  is  unlawful, 
aside  from  boycotts,  pickets  and  other  such  methods. 

It  is,  however,  difficult  to  draw  the  line  between 
workmen's  gain  and  injury  to  employers,  and  it  is 
lawful  to  strike  for  the  striker's  gain  in  wages,  hours 
or  other  conditions  of  employment  if  strikes  have  sev- 
eral motives.  The  chief  cause  of  guilt  has  been  not 
so  much  the  quitting  of  work  as  the  methods  followed 
by  the  men  after  quitting. 

6.  The  boycott.  Picketing. — There  has  been  much 
confusion  of  thought  about  the  boycott,  that  is,  the 
turning  of  business  away  from  the  employer  whose 
men  have  struck,  and  possibly  from  others  who  have 
dealings  with  him,  in  order  to  help  strikers.  In  most 
states  boycotts  have  been  condemned  as  conspiracies. 
In  some  others  they  are  not  illegal.  The  principle 
toward  which  governmental  policy  seems  to  be  shap- 


146        BUSINESS  AND  THE  GOVERNMENT 

ing  is  tliat  while  those  directly  involved  in  the  strike 
may  turn  their  patronage  from  and  to  whomsoever 
they  choose,  they  may  not  combine  to  force  others  into 
helping  them  by  boycotting  the  others.  Likewise  as 
regards  picketing,  strikers  may  post  pickets  to  inform 
any  who  come  that  there  is  a  strike  or  gently  to  per- 
suade them  to  remain  away.  When,  however,  picket- 
ing develops  into  intimidation  and  coercion  by  em- 
ploying threats,  it  is  generally  condemned. 

7.  Injunctions  in  the  control  of  unions. — As  many 
of  the  activities  of  unions  may  impair  the  material  or 
immaterial  property  of  an  employer,  and  as  employes 
ordinarily  are  not  financially  responsible  for  damages 
they  may  have  caused,  American  courts  have  adopted 
the  practice  of  restraining  strikers  and  their  sympa- 
thizers from  doing  this  thing  or  that,  from  striking, 
from  boycotting,  from  picketing,  or  from  doing  other 
and  more  specific  things;  as  publishing  certain  state- 
ments or  going  here  or  there.  As  the  restraint  is  ef- 
fected by  the  formidable  agency  of  an  injunction, 
disobedience  of  which  is  punishable  by  imprisonment 
in  the  most  summary  manner,  workmen  have  become 
very  bitterly  opposed  to  it.  By  an  act  of  Congress 
in  1914,  the  Clayton  Act,  and  by  similar  statutes  in 
several  states  there  has  been  a  beginning  of  legislation 
to  restrict  the  issuance  of  injunctions  in  labor  dis- 
putes. 

8.  Financial  liability  of  members  of  unions. — By 
the  decision  of  a  British  court  in  the  famous  Taff  Vale 
Case  in  1901,  individual  members  of  trade  unions  were 


PROBLEMS  OF  EMPLOYMENT  UT 

held  financially  liable  for  the  acts  of  their  unions ;  and 
by  the  decision  of  the  United  States  Supreme  Court 
in  the  so-called  Danbury  Hatters'  Case,  finally  de- 
cided in  1915,  this  same  principle  is  established  in  this 
country.  The  situation  is  made  especially  serious  for 
the  union  men  by  the  fact  that,  under  the  Federal  anti- 
trust laws,  triple  damages  may  be  assessed  for  any 
financial  injury  which  their  acts  may  have  caused  an 
emploj^er. 

There  can  be  little  doubt  that  the  American  policy 
is  equal  rights  for  all.  The  difficulty  is  to  apply  that 
policy  in  specific  cases.  Employers,  employes  and 
the  courts  are  all  feeling  their  way  in  that  direction. 
Not  only  must  there  be  legal  equality,  but  gradually 
there  will  develop  also  actual  equality.  The  condi- 
tions that  have  been  brought  about  by  the  war  will 
doubtless  continue  to  modify  profoundly  the  pre- 
existing conditions  as  they  will  develop  under  the  pres- 
sure of  national  need.  Voluntary,  harmonious  action 
under  the  supervision  and  cooperation  of  government 
has  attained  most  remarkable  results.  It  is  to  be  ex- 
pected that  many  of  these  results  will  be  maintained 
after  the  period  of  readjustment  has  passed. 

9.  Public  inspections. — Aside  from  the  relief  of 
abuses  afforded  by  the  courts,  it  is  essential  that  most 
regulations  affecting  the  welfare  of  working  men,  cov- 
ering matters  of  sanitation,  hours  of  labor,  protection 
of  machinery  and  similar  matters,  be  enforced  by 
officials  especially  appointed  for  that  purpose. 

At  first  it  is  essential  that  provision  be  made  for 


148        BUSINESS  AND  THE  GOVERNMENT 

reports  of  accidents  and  of  such  diseases  as  may  be 
clearly  charged  to  the  employment.  That  this  may  be 
properly  carried  out  there  must  be  careful  definition 
of  "accident"  and  provisions  must  be  made  for  ascer- 
taining the  degrees  of  seriousness  of  accidents  that 
come  under  official  notice.  Improvements  have  been 
steadily  made  in  this  direction  but  there  is  still  much 
to  be  desired. 

At  present  it  is  customary  in  practically  all  states 
with  proper  legislation  on  these  subjects,  to  have  pub- 
lic inspectors  appointe-d  to  make  careful  investigations 
and  reports  and  to  see  that  proper  measures  are  taken 
for  the  enforcement  of  the  laws.  Previously,  public 
inspectors  of  work  places  were  inadequate  and  they 
were  Hot  infrequently  chosen  for  partisan  reasons 
rather  than  for  their  technical  knowledge  and  ability. 
It  is  still  not  infrequently  charged  that  inspectors,  for 
example,  of  building  departments,  of  tenement  house 
departments,  of  health  departments  and  others,  are 
not  always  above  receiving  bribes  to  hasten  their  work 
and  to  fail  to  see  things  that  are  unpleasant  for  the 
employer  or  owner.  There  has,  however,  been  a 
marked  improvement  in  the  quality  of  inspection. 
The  powers  of  entry  and  access  of  inspectors  have 
been  enlarged.  Nevertheless,  notwithstanding  the 
fact  that  the  employers  show  much  greater  readiness 
to  respond  to  the  legal  requirements  than  formerly, 
it  is  still  essential  that  there  be  a  corps  of  competent 
inspectors  whose  services  are  greatly  needed  in  sug- 
gestion and  guidance  if  not  in  enforcement  of  law. 


PROBLEMS  OF  EMPLOYMENT  149 

10.  Industnal  commissions. — In  many  of  the  states, 
provision  has  been  made  for  the  estabhshment  of  in- 
dustrial commissions  to  which  are  entrusted  the  gen- 
eral administration  of  the  labor  laws  and  particularly 
the  development  and  application  of  the  rules  affecting 
safety.  The  essential  function  of  the  new  adminis- 
trative power  is  continually  to  study  enforcement  of 
the  law.  Legislatures  may  prescribe  in  law  many  of 
the  conditions  of  occupation.  They  may,  for  exam- 
ple, specify  adequately  the  contents  of  first-aid  kits 
for  every  variety  of  occupation,  but  it  is  inconceivable 
that  the  best  of  known  instruments  and  appliances  at 
any  specific  date  will  remain  the  best  until  the  legisla- 
ture can  convene  again  and  act.  If  laws  are  to  be 
kept  adjusted  to  the  rapidly  changing  conditions  of 
the  time,  there  must  be  an  administrative  board  with 
a  considerable  degree  of  discretionary  power.  Legis- 
lators should  lay  down  only  general  principles  of  regu- 
lation, the  detailed  requirements  and  administration 
should  be  committed  to  a  permanent  board  which  will 
develop  in  its  permanent  technical  staff  the  best  and 
latest  knowledge  and  skill.  This  principle  has  been 
adopted  in  the  most  progressive  states  with  marked 
success. 

11.  Results. — Altho  much  still  remains  to  be  ac- 
comi)lished,  there  can  be  no  doubt  that  there  has  been 
a  decided  improvement.  As  yet  the  safeguards  and 
rules  are  imperfect.  They  are  still  imperfectly  ac- 
cepted and  applied.  Macliinery  is  becoming  ever 
more  powerful  and  more  rapid,  but  accidents  are  now 


150        BUSINESS  AND  THE  GOVERNMENT 

noted  and  recorded  better  than  before  and  society  has 
made  great  progress  in  the  care  it  takes. 

It  is  just  to  keep  in  mind  that  many  employers  not 
only  obey  the  laws  but  are  even  well  in  advance  of  the 
laws.  Many  of  the  large  corporations  maintain  spe- 
cial safety  departments,  they  have  safety  committees 
on  which  workmen  and  officials  unite  to  promote  the 
safety  of  the  workmen,  for  which  purpose  they  spend 
many  thousands  of  dollars  a  year.  The  percentage  of 
accidents  is  steadily  decreasing.  It  is  certain  that 
progress  will  continue.  The  world  cannot  destroy  its 
working  men  without  losing,  it  cannot  preserve  them 
without  gaining  not  only  in  personal  satisfaction  but 
also  in  wealth. 

In  earlier  days  the  function  of  government  seemed 
to  be  primarily  protection  and,  more  largely,  protec- 
tion against  attacks  by  hostile  states,  highwaymen, 
assassins,  or  thieves.  At  the  present  time,  murderers, 
robbers,  invading  armies  ( in  spite  of  the  lessons  of  the 
Great  War)  are,  in  normal  times  at  least,  far  less  dan- 
gerous than  microbes,  contaminated  water,  unguarded 
cog  wheels,  unfenced  belting,  smooth  and  unrailed 
stairways,  imperfectly  insulated  wires  and  projecting 
set  screws.  JNIore  knowledge  and  more  public  spirit 
will  impose  more  rigid  standards  of  safety,  and  the 
most  enlightened  employer,  both  from  thoughtful  self- 
interest  and  from  inclination,  will  not  only  follow  laws 
but  will  actually  outstrip  them. 

12.  Immigration. — Inasmuch  as  business  is  vitally 
interested  in  the  numbers  and  character  of  its  people, 


PROBLEMS  OF  EMPLOYMENT  151 

the  question  of  ininiigration  becomes  one  of  prime  im- 
portance. It  should  be  kept  in  mind  also  that  the 
question  is  not  only  industrial  in  character  but  it  in- 
volves likewise  religious,  social  and  political  questions 
of  every  kind.  Our  futvn-e  citizenship  will  consist 
largely  of  the  descendants  of  the  foreign  born. 

Before  the  outbreak  of  the  war  in  1914,  the  annual 
average  of  immigration  into  the  United  States  was 
some  1,250,000  or  more.  In  the  earlier  days  the  ma- 
jority of  the  immigrants  came  from  northern  and 
western  European  stock.  In  later  years  the  immi- 
grants were  primarily  from  southern  and  eastern  Eu- 
rope, representing  many  different  races  with  varying 
racial  characteristics.  We  need,  of  course,  to  avoid 
race  prejudice  and  not  to  think  that  differences  in 
customs  imply  either  inferiority  or  superiority.  Some 
of  these  races  will  doubtless  be  of  greater  economic 
value  than  others.  Some  will  become  assimilated 
quickly,  others  slowly  and  still  others  perhaps  not 
at  all. 

These  facts  have  led  the  United  States  as  well  as 
Canada,  Australia  and  New  Zealand  to  take  certain 
special  measures  regarding  races  widely  different  in 
characteristics  from  our  own,  such  as  the  Asiatics. 

The  normal  tendency  of  human  beings  to  seek  those 
of  their  own  language  and  characteristics  increases  the 
likelihood  of  the  formation  of  social  and  political 
cliques  that  check  or  prevent  assimilation  in  the 
United  States  and  that  may  create  dangerous  political 
and  social  problems.     For  example,  in  1914,  44  per 


152        BUSINESS  AND  THE  GOVERNMENT 

cent  of  the  total  Slovak  immigration  went  to  Penn- 
sylvania.    Between  1900  and  1910  the  native  born 
population  of  Pennsylvania  increased  only  16.9  per 
cent  while  the  foreign  born  increased  46.4  per  cent. 
Again,  while  earlier  immigi-ants  went  as  skilled  labor- 
ers into  the  principal  trades  and  industries,  or  as  farm- 
ers  purchased   lands   in   the   East   while   American 
farmers  became  enterprising  settlers  on  the  Western 
frontier,  now  a  larger  proportion  of  the  immigrants 
settle  in  the  great  industrial  centres  of  the  East,  form- 
ing racial  colonies  in  the  cities  and  competing  on  lower 
standards  with  American  workmen.     These  facts  and 
other  similar  ones  make  the  immigration  problem  seri- ' 
ous.     The  immigrants  must  be  assimilated  and  steps 
must  be  taken  to  check  the  tendency  to  lower  the 
standard  of  living.     Thoro  researches  of  the  United 
States  Immigration  Commission  proved  beyond  ques- 
tion these  evils  and  dangers.     To  establish  firmly  an 
American  standard  of  work  and  living;  to  guarantee 
a  proper  distribution  of  the  benefits  of  our  marvellous 
natural  resources  and  our  wonderful  industrial  prog- 
ress, and  at  the  same  time  to  maintain  the  spirit  of 
enterprise,  industrial  progress  and  efficiency,  it  seemed 
necessary  to  the  Commission  to  restrict  immigration, 
at  least  temporarily,  and  that  the  country  take  steps 
to  assimilate  the  immigrants  industrially,  to  educate 
them  to  proper  standards  of  living  and  to  give  them 
the  economic,  intellectual  and  moral  aspirations  of  the 
native  Americans. 

This  policy  has  been  fully  justified  by  the  experi- 


PROBLEMS  OF  EMPLOYMENT  153 

ence  of  the  war.  The  fact  that,  altho  immigration 
was  cut  off  by  war  conditions,  the  United  States  has 
l)een  able  to  increase  its  production  in  ahnost  every 
line  of  industry  to  unprecedented  totals,  clearly  indi- 
cates that  there  must  have  been  here  a  large  amount  of 
slack  labor  which  needed  to  be  taken  up  before  any 
real  shortage  of  labor  could  exist. 

The  labor  unions,  a  very  large  percentage  of  the 
scientific  students  of  the  subject  and  overwhelming 
majorities  in  Congress  justified  this  contention,  so  that 
on  Februaiy  1,  1917,  a  restrictive  immigration  bill 
was  passed  by  the  House  of  Representatives  over  the 
veto  of  President  Wilson,  and  four  days  later  the 
Senate  took  the  same  action. 

This  bill  provided  for  a  reading  test,  with  seyeral 
exceptions  to  prevent  undue  hardship. 

During  1920  an  unprecedented  rush  of  immigration 
took  place  and  all  the  facilities  were  taxed  far  beyond 
their  capacity.  The  literacy  test  together  with  more 
thoro  medical  examination  reduced  the  speed  with 
which  the  newcomers  could  be  passed  into  the  country 
even  tho  the  former  seems  to  have  been  very  laxly 
applied  in  many  instances.  The  total  number  of  im- 
migrants for  the  first  half  of  the  fiscal  year  1920-21 
gave  good  reason  for  a  })elief  that  the  greatest  influx 
in  our  history  had  begun.  Italians  and  Polish  Jews 
formed  the  larger  part  of  the  arrivals  in  1920;  the 
smaller  part  was  composed  of  Knglisli,  French  (some 
from  Europe  and  some  from  Canada),  Spanish,  Por- 
tuguese and  Mexicans. 


154        BUSINESS  AND  THE  GOVERNMENT 

Immigration  from  Asiatic  countries  is  much  more 
strictly  controlled  than  that  from  Europe.  The 
measures  that  have  been  in  force  for  several  years 
amount  to  practical  exclusion  of  all  Asiatics  except 
Japanese.  Steps  undertaken  during  the  war  to  have 
the  so-called  "gentlemen's  agreement"  with  Japan 
abrogated  and  equal  restrictions  applied  to  all  Orien- 
tal countries  were  for  a  time  discontinued  because  of 
the  international  situation.  This  agitation  was 
strongly  revived  during  1920  especially  by  the  provi- 
sions of  the  California  Land  Act  adopted  by  a  refer- 
endum vote  of  about  two  to  one  on  November  2,  1920. 
This,  act  rigidly  restricts  the  use  and  ownership  of 
farming  lands  by  the  Japanese  in  California. 

Heretofore  the  Government  has  taken  measures  to 
restrict  Asiatics  much  more  rigidly  on  account  of  the 
difficulty  of  assimilation.  This  is  practically  exclu- 
sion. 

13.  Americanization. — For  business,  as  well  as  for 
social  and  political  reasons,  it  is  extremely  desirable 
that  immigrants,  who  are  to  make  their  permanent 
home  here,  become  Americans  in  mind  and  heart  as 
soon  as  possible.  The  greatest  evils  of  immigration 
are  found  in  our  large  mining  and  industrial  centers. 
Movements  to  secure  a  better  distribution  of  the  immi- 
grant, especially  as  farmers  upon  the  land,  should  be 
encouraged.  The  majority  of  those  coming  from 
Italy  and  Austria-Hungary  have  been  farmers. 
They  should  be  encouraged  to  become  farmers  here. 

Again,  they  need  to  know  the  English  language,  to 


PROBLEMS  OF  EMPLOYMENT  155 

understand  American  political  institutions,  to  learn 
American  customs  of  living  and  working  that  they 
may  become  an  integral  part  of  our  nation.  Efforts 
are  being  made  by  private  citizens,  by  voluntary  asso- 
ciations, by  governmental  action,  thru  schools  and 
bureaus,  to  accomplish  these  results. 

The  influx  of  such  large  numbers  of  immigrants  em- 
phasizes the  necessity  of  redoubled  efforts  toward  their 
Americanization  and  proper  distribution  to  insure 
their  location  where  opportunities  are  best  for  them 
and  where  they  will  contribute  most  to  the  agricultural 
and  industrial  develo^jment  of  the  country. 

REVIEW 

Where  and  why  did  labor  unions  originate?  Give  an  estimate 
of  the  extent  of  labor  unions  in  the  United  States  at  the  present 
time. 

What  are  the  provisions  of  the  Clayton  Act  of  1911  that  affect 
labor  unions? 

Indicate  the  attitude  of  the  United  States  courts  and  of  the 
state  courts  regarding  strikes  and  boycotts. 

Wliat  is  the  attitude  of  the  British  and  American  laws  regard- 
ing the  financial  liability  of  members  of  trade  unions? 

How  far  was  the  restriction  of  immigration  during  the  recent 
war  responsible  for  the  rapid  rise  in  wages? 

If  immigration  continues  at  the  high  rate  established  in  1920. 
wliat  effect  may  it  be  expected  to  have  upon  the  American  stand- 
ard of  living? 

Why  do  we  openly  pass  an  exclusion  law  against  the  Chinese 
and  not  favor  one  against  the  Japanese?  What  are  the  really 
sound  reasons  for  the  exclusion  of  both,  if  any  exist? 


CHAPTER  VIII 

PUBLIC  SERVICE  CORPORATIONS 

1.  Public  service  corporations  need  special  recogni- 
tion.— In  the  business  field,  there  is  a  group  of  public 
sei-idce  activities  which,  even  in  normal  peace  times, 
require  special  recognition  and  consideration  on  the 
part  of  the  Government.  First  are  the  transporta- 
tion interests,  including  steam  railroads,  ships  and 
boats,  street  and  interurban  electric  railways  and  other 
common  carriers  both  of  passengers  and  property. 
Second,  and  of  nearly  equal  importance,  are  the  indus- 
tries for  the  transmission  of  intelligence  such  as  the 
telegraph,  wireless  telegraph  and  telephone ;  and  third 
come  the  light,  heat,  power  and  sanitation  utilities, 
including  gas,  electricity,  water  and  drainage. 
Closely  allied  with  these  are  such  other  industrial  lines 
as  docks,  warehouses,  grain  elevators  and  cold-storage 
plants. 

War  always  introduces  new  elements  into  the  busi- 
ness life  of  a  people.  Winning  the  war  becomes  of 
paramount  importance,  and  when  the  success  of  the 
national  arms  is  at  stake  all  other  interests  must  step 
aside.  Such  a  necessitj?^  prompted  the  Government  of 
the  United  States,  whether  wisely  or  not,  to  assmne 
direction  of  the  railroads  of  the  country.     Early  in  the 

15G 


PUBLIC  SERVICE  CORPORATIONS  157 

war,  the  Navy  Department  had  taken  over  the  man- 
agement of  wireless  stations,  and  later,  when  a  serious 
strike  was  threatened,  it  took  over  the  operation  of  the 
telegraphs  and  telephones.  Finally,  shortly  after  the 
signing  of  the  armistice  on  November  11,  1918,  the 
Government  took  over  also  the  management  of  the 
international  cables.  Aside  from  directing  these  pub- 
lic utilities,  the  Government  exercised  a  control  over 
our  industrial  life  which  became  in  many  respects,  as 
we  shall  see,  very  stringent  until  the  end  of  the  war. 
This  war  control  was  doubtless  looked  upon  as  a  tem- 
porary phase  in  the  management  of  public  utilities. 
This  did  not  obliterate  their  fundamental  relations  to 
the  public  and  to  the  Government.  Yet  the  experi- 
ences of  the  war  have  certainly  greatly  modified  these 
j'elations.  To  understand  these  relations  it  is  best  to 
discuss  in  this  chapter  some  of  the  basic  principles 
involved. 

2.  Whi/  different  from  other  industries. — In  a 
number  of  ways,  the  relationship  between  these  public 
service  industries  and  the  public  is  different  but  more 
intimate  than  that  in  other  lines  of  business.  In  gen- 
eral, these  industries  are  mono])olies,  based  on  legal 
sanction  or  natural  conditions.  jNIonopolics  may  be 
classified  as  legal  monopolies,  natural  monopolies  and 
capitalistic  monopolies.  At  the  present  time,  we  have 
two  general  kinds  of  legal  monopolies.  Our  patent 
system  and  the  copyright  system,  which  applies  to 
books  and  printing,  both  give  monopoly  for  a  specified 
term  of  years.     Public  franchises,  such  as  the  privi- 

XXIV— 12 


158        BUSINESS  AND  THE  GOVERNMENT 

leges  granted  to  urban  railways  for  the  use  of  certain 
streets,  also  create  legal  monopolies.  These  rights 
are  generally  granted  to  a  single  corporation  and  are 
frequently  perpetual. 

3.  Meaning  of  natural  monopoly. — By  natural  mo- 
nopoly, we  ordinarily  mean  a  business  enterprise  of 
such  a  nature  that  owing  to  the  mere  economic  facts 
in  the  case,  there  is  of  necessity  a  monopoly.  It  is 
something  that  is  not  at  all  a  matter  of  law,  altho  it 
may  be  favored  with  a  law — it  is  simply  the  outcome 
of  the  nature  of  the  business  itself.  Ordinarily  the 
chief  characteristic  of  a  natural  monopoly  is  that  it  is 
"an  industry  of  increasing  returns"  as  compared  with 
industries  of  "constant  returns"  or  industries  of  "di- 
minishing returns." 

While  in  agriculture  generally  successive  increases 
of  labor  and  capital  applied  to  an  acre  of  soil,  do  not 
bring  proportionate  returns,  in  the  case  of  ordinary 
manufacturing  or  merchandizing  for  every  increment 
of  capital  and  labor  added  you  get  substantially  an 
equal  return.  There  is  a  third  class  of  industries,  in- 
dustries of  increasing  returns,  in  which  for  the  addi- 
tion of  a  certain  increment  of  capital  and  labor  you  get 
more  than  a  proportionate  return.  Natural  monop- 
olies are  of  that  class.  After  a  railroad  has  been  built 
and  has  a  certain  capacity  of  production,  it  can  carry 
a  certain  amount  of  freight  and  a  fixed  number  of  pas- 
sengers. If  you  wish  to  double  the  carrying  capacity 
of  the  road,  you  do  not  need  to  double  the  investment 
of  capital.     In  all  probability  you  would  need  only  to 


PUBLIC  SERVICE  CORPORATIONS  159 

add  the  necessary  number  of  cars  and  locomotives  and 
a  few  more  employes.  To  increase  freight  25  per 
cent,  you  do  not  add  25  per  cent  to  the  grading  and 
tracks,  you  put  on  extra  cars  and  locomotives.  This 
principle  of  natural  monopoly — increasing  returns — 
applies  not  only  to  railroads,  but  also  to  street  rail- 
ways, to  gas  and  electric  light,  and  water  supply  com- 
panies. 

4.  No  reasonable  competition  between  railroads  in 
same  territory. — There  can  be  no  fair,  reasonable  com- 
petition with  a  railroad  that  meets  the  needs  of  a  cer- 
tain district.  A  parallel  line  is  largely  a  sheer  waste 
of  capital.  If  the  first  railroad  cannot  quite  handle 
the  traffic,  increase  its  capacity.  If  a  jDarallel  road  is 
built  the  only  possible  way  for  them  to  get  along  to- 
gether is  to  combine.  If  they  attempt  to  compete,  it 
means  ruin  for  both,  for  neither  can  afford  to  stop 
business  or  to  cut  rates  in  order  to  increase  traffic  be- 
yond what  would  enable  it  to  continue  permanently 
in  business. 

5.  Public  service  corporations  tend  inevitably  to- 
ward monopoly. — From  the  mere  fact  that  the  rail- 
road is  an  industry  of  this  type,  it  inevitably  tends 
toward  monopoly.  The  same  principle  holds  witli 
street  railways.  Sen-ice  is  needed  on  certain  streets. 
One  line  can  occupy  the  street  satisfactorily,  but  an- 
other one  cannot  be  built  without  great  disadvantage 
to  all  concerned.  There  is  no  room  for  two  different 
railroads  on  one  street.  iVIoreover,  two  are  unneces- 
sary.    It  is  an  industry  of  increasing  returns.     If 


160        BUSINESS  AND  THE  GOVERNMENT 

added  service  is  needed,  do  not  put  in  another  railroad 
but  put  in  additional  facilities  for  the  existing  line. 

A  natural  monopoly  may  be  also  an  industry  of 
such  a  nature  that  it  will  be  given  a  franchise  and  in 
that  way  become  a  legal,  as  well  as  natural  monopoly. 

The  development  of  water  power  within  the  last  few 
years  has  added  another  large  group  of  industries  to 
the  public  utilities  list.  Compared  with  a  water-wheel 
horse  power  of  2,471,081  in  1912,  the  magazine  Power 
estimates  the  developed  water  power  in  1920  at  9,823,- 
000  or  16.6  per  cent  of  the  potential  water  power  of 
the  United  States.  Many  charges  have  been  made 
that  in  a  number  of  cases,  particularly  in  southern  and 
western  states,  companies  have  been  organized  to  buy 
up  in  advance  and  control  all  the  water  power  sites  so 
that  anybody  wishing  to  use  water  power  has  to  rent 
that  power  from  these  companies  who  have  a  monop- 
oly. Even  tho  their  rates  for  water  power  are  lower 
than  the  cost  of  steam  power,  many  of  these  com- 
panies, it  is  claimed,  have  enough  control  to  prevent 
others  from  getting  water  power.  In  this  way  they 
are  able  to  restrict  development.  This  again  is  a  type 
of  natural  monopoly  and  it  raises  the  issue  whether  or 
not  the  Government  should  not  own  all  the  water 
powers.  At  least,  direct  government  supervision 
under  carefully  drawn  franchise  agreements  should  be 
made  before  these  water-power  rights  are  allowed  to 
go  into  private  hands.  Otherwise,  there  will  result 
the  conditions  prevalent  in  many  of  our  cities,  where  a 
long  struggle  has  been  necessary  to  get  back  some  of 


PUBLIC  SERVICE  CORPORATIONS  161 

the  rights  granted  to  public  utility  companies  in  for- 
mer days. 

6.  Characteristics  of  public  service  enterprises. — 
Since  these  industries  from  their  very  nature  possess 
inherent  monopolistic  characteristics,  their  relation  to 
the  public  is  very  important.  In  general  we  may  note 
four  characteristics  in  all  these  industries. 

The  public  is  peculiarly  dependent  upon  them  for 
its  comfort  and  its  progress.  Upon  good  water  de- 
pends, in  large  part,  the  health  of  a  community. 
Upon  quick  and  reasonable  transportation  depends 
business  and,  just  as  important,  the  happiness  of  the 
people.  Especially  is  comfort  dependent  upon  the 
municipal  railway  system  and  the  ability  of  the  peo- 
ple, with  its  aid,  to  extend  their  range  for  homes  over 
a  wide  area.  The  rapidity  of  present-day  American 
business  depends  largely  on  the  telegraph  and  tele- 
phone. Upon  good  service  in  gas  and  electricity, 
much  of  our  city  life  thrives.  In  a  hundred  and  one 
ways,  modern  life  depends  upon  the  service  rendered 
by  these  industries. 

7.  Substitution  impossible. — Substitution  for  their 
service  and  products  is  almost  impossible.  True,  the 
jitney  bus  flourished  for  a  while  and  in  some  localities 
is  still  patronized,  but  as  a  permanent  substitute  foi* 
the  great  mass  of  the  people  it  is  of  little  consequence. 
Motor  trucks  are  being  used  to  an  increasing  extent 
by  military  authorities  and  industrial  concerns  for 
hauls  roughly  up  to  three  hundred  miles  in  extent. 
While  this  form  of  transportation  as  a  rule   is   no 


162         BUSINESS  AND  THE  GOVERNMENT 

cheaper  than  that  offered  by  the  rail  lines  it  has  the 
advantage  of  quickness  and  door  to  door  delivery. 
Eventually  a  large  part  of  the  short  haul  traffic  now 
carried  by  the  railroads  will  be  transported  in  this 
way,  leaving  to  the  railroads  the  more  profitable  long 
haul  traffic.  The  motor  truck  will  not  displace  the 
railroad  but  will  become  supplementary  to  it. 

8.  Competition  impossible. — Competition  in  these 
industries  is  a  practical  im2:)ossibility.  The  value  and 
the  propriety  of  monopoly  conditons  is  recognized 
in  the  public  service  corporations.  The  nature  of  the 
service  rendered  by  them  gives  them  rate-making  pow- 
ers that  clearly  resemble  the  taxing  powers  of  the 
Government.  Legally,  they  are  distinguished  from 
ordinary  private  business  as  they  are  under  recognized 
legal  obligation  to  provide  satisfactory  service,  to  re- 
frain from  unjust  discrimination  and  to  make  their 
charges  for  service  reasonable  and  just.  Such  restric- 
tions are  not  generally  placed  on  manufacturing  en- 
terprises, department  stores  or  other  such  lines  of 
business. 

9.  Assisted  by  the  Government  in  a  peculiar  way. 
— The  fact  that  the  Government  has  assisted  these 
industries  in  many  ways  in  a  peculiar  manner  thru 
giving  them  the  right  of  eminent  domain,  money  and 
land  grants,  and  liberal  franchises,  including  the  use 
of  city  streets,  undoubtedly  gives  to  the  public  a  moral 
and  legal  right  to  prevent  the  abuse  of  monopoly 
power  or  any  activities  inimical  to  the  public  good. 
The  tremendous  influence  of  these  corporations  on 


PUBLIC  SERVICE  CORPORATIONS  163 

the  standard  of  living  and  their  abihty  to  secure  the 
unearned  increment  value  coming  from  rapid  increase 
in  population,  make  needful  a  large  degree  of  public 
oversight.  They  must  be  effective  instruments  for 
the  service  of  the  individual  citizen  and  for  the  devel- 
opment of  the  country.  Their  regulation  is  a  neces- 
sity. The  recognition  and  expansion  of  the  principle 
of  control  of  public  utilities  constitutes  one  of  the 
most  striking  features  of  American  political  life  in 
recent  years. 

10.  Bad  practices  in  the  past. — In  the  early  devel- 
opment of  public  utility  industries,  this  principle  was 
not  recognized ;  there  was  little  or  no  safeguarding  of 
the  public's  welfare.  Their  monopoly  characteristics 
were  not  so  clearly  recognized.  The  public  had  had 
no  experience  with  them.  The  future  values  of  fran- 
chises granted  were  not  clearly  recognized  and  they 

•were  often  chartered  for  long  periods  of  time  or  in 
perpetuity  with  little  or  no  return.  Millions  of  acres 
of  land  of  untold  value  were  given  in  grants  to  the 
railroads.  City  privileges  essential  to  the  future 
growth  of  a  municipality  were  given  to  private  com- 
panies with  little  thought. 

11.  Public  service  character  not  7rcog iiized.— Muvh 
of  the  present  difficulty  in  the  proper  control  of  public 
utilities  comes  from  this  lack  of  foresight.  The  public 
strives  to  win  back  these  essentials,  so  freely  given  in 
the  past,  simply  because  the  public  service  character  of 
these  corporations  was  not  clearly  recognized. 

It  is  on  that  account  that  we  find  in  the  newspapers 


164         BUSINESS  AND  THE  GOVERNMENT 

such  expressions  as  war,  telephone  fight,  electric  light 
controversies,  and  other  war-hke  expressions.  As 
Mr.  Delos  F.  Wilcox  has  ah'eady  noted,  the  news- 
papers have  inadvertently  assumed  that  the  public 
service  corporations  are  public  enemies.  This  as- 
sumption is  at  any  rate  so  frequently  made  by  many 
of  our  papers  that  large  numbers  of  the  less  intelli- 
gent readers  regularly  act  upon  that  assumption. 

This  attitude  which  emphasizes  certain  abuses  really 
exceptional  in  character  instead  of  the  far-reaching 
benefits  of  their  public  service,  has  become  of  late  a 
serious  menace,  since  it  has  hindered  and  in  some 
extremely  important  cases  prevented  the  adoption  of 
measures  for  refinancing  in  time  of  need,  thus  driving 
many  companies  into  bankruptcy.  Fortunately,  both 
sides  are  now  coming  to  a  more  reasonable  state  of 
mind.  The  principle  of  regulation  is  firmly  estab- 
lished. 

12.  Systematic  regulation  a  recent  matter. — Sys- 
tematic regulation  of  public  utilities,  however,  is  a 
comparatively  recent  matter.  It  is  true,  of  course, 
that  in  some  states  railroad  commissions  have  existed 
for  forty  years  or  more.  The  Massachusetts  Gas  and 
Electric  Commission  is  thirty  years  old.  The  Inter- 
state Commerce  Commission  Act,  the  forerunner  of 
Federal  regulation,  was  passed  in  1887.  In  1906, 
the  Interstate  Commerce  Law  was  amended  to  give 
the  commission  mandatory,  instead  of  merely  advisory 
powers  with  respect  to  rates  to  be  charged  in  the  fu- 
ture.    In  1907,  Wisconsin  and  New  York  enacted 


PUBLIC  SERVICE  CORPORATIONS  165 

their  comprehensive  piibhc  utility  laws.  The  number 
of  states  having  such  commissions  is  now  thirty-one. 
The  District  of  Columbia,  Hawaii  and  the  Philippine 
Islands,  have  each  a  commission.  AVith  the  exception 
of  Delaware  and  Utah,  all  the  states  now  have  either 
railroad  commissions  or  public  utility  commissions  or 
both. 

13.  Powers  of  regulating  commissions. — In  almost 
all  cases  the  commissions  can  prescribe  rates  to  be 
charged.  They  may  investigate  the  service  rendered 
by  the  utilities,  and  if  they  find  it  inadequate,  they 
may  direct  that  new  standards  be  established.  They 
control  the  accounting  practices.  The  companies  are 
obliged  to  make  regular  and  special  reports  to  the 
commissions  at  times  fixed  either  by  law  or  by  rules  of 
the  commissions.  Whenever  such  companies  wish  to 
issue  new  stocks  or  bonds,  they  must  first  get  the  com- 
mission's consent.  In  these  and  other  ways,  the  pub- 
lic service  commissions  enter  intimately  into  the  affairs 
of  public  utility  companies.  They  act  either  on  the 
complaint  of  a  dissatisfied  consumer  or  on  that  of  a 
municipality  or  an  association  of  some  kind,  or  they 
may  make  their  own  complaints  and  prosecute  on  their 
own  initiative. 

14.  Commissioners ,  hrnv  chosen. — The  commission- 
ers are  either  appointe.d  or  elected,  the  prevailing 
method  being  to  have  them  appointed  by  the  governor 
of  a  state,  subject  to  confirmation  by  the  Senate.  In 
a  number  of  states,  however,  tlic  mem])ers  of  the  com- 
missions are  chosen  directly  by  the  people  at  general 


166        BUSINESS  AND  THE  GOVERNMENT 

or  special  elections.  The  terms  of  office  of  the  com- 
missioners are  usually  long  enough  to  enable  them  to 
become  proficient  in  their 'work. 

15.  Commissioners  must  possess  high  qualifications. 
— The  duties  of  commissioners  call  for  a  high  degree 
of  ability.  In  fact,  it  is  generally  admitted  that  the 
value  of  any  regulating  law  depends  primarily  on  the 
ability  and  integrity  of  the  commission  chosen  to  ad- 
minster  it.  It  is  readily  seen,  however,  that  the  ad- 
ministration of  these  laws  may  be  closely  linked  with 
politics,  and  sometimes  men  whose  chief  qualification 
is  their  loyalty  to  a  political  party  machine  may  be- 
come commissioners. 

16.  Status  of  regulating  bodies. — The  Government 
generally  classifies  these  commissions  as  administra- 
tive agencies,  possessing  neither  judicial  nor  legisla- 
tive powers.  In  performing  their  duties,  however, 
they  must  satisfy  the  courts  both  as  to  their  compliance 
with  the  authority  granted  them  by  the  legislature  and 
as  to  their  observance  of  constitutional  guarantees. 
Sometimes  the  legislatures  have  not  given  the  commis- 
sions all  the  powers  that  are  needed  to  make  regula- 
tion entirely  efficient.  More  frequently,  however,  the 
commissions  are  hindered  by  the  courts'  narrow  inter- 
pretation of  their  powers.  This  is  especially  the  case 
when  there  is  question  of  determining  the  earnings  to 
which  a  public  utility  enterprise  is  entitled.  In  this 
important  function  the  courts  have  practically  taken 
the  place  of  the  commissions. 

17.  State  versus  local  regulation. — The  regulation 


PUBLIC  SERVICE  CORPORATIONS  16T 

of  public  utilities  by  the  state  rather  than  by  the  mu- 
nicipality has  been  the  popular  program  during  the 
last  few  years,  tho  many  examples  of  good  results  and 
progress  have  been  accomplished  under  local  munici- 
pal rule.  Those  arguing  for  municipal  regulation  as 
against  state  regulation  claim  that  the  latter  is  favored 
by  the  public  service  corporations  who  wish  to  write 
the  laws  and  use  their  influence  in  getting  appointees 
of  the  right  mind ;  that  state  regulation  has  not  done  so 
well  as  municipal  regulation ;  and  that  it  has  not  elimi- 
nated the  public  utility  from  municipal  politics.  Per- 
haps the  strongest  argument,  and  one  that  has  a  great 
deal  of  good  sense  in  it,  is  that  state  regulation  has 
taken  away  from  the  citizens  of  a  municipality  their 
immediate  interest  in  these  questions  and  has  had  a 
disastrous  effect  on  the  quality  of  municipal  citizen- 
ship. Cities,  for  their  right  development,  should  have 
a  large  amount  of  home  rule  and  we  must  be  careful 
not  to  break  down  these  strong,  local  interests. 

18.  Advantages  of  state  regulation. — On  the  other 
hand,  certain  outstanding  advantages  come  from  state 
regulation.  The  very  form  of  public  utility  manage- 
ment, now  changing  so  rapidly  and  in  the  direction 
of  concentration,  makes  state  control  almost  a  neces- 
sity. The  tendency  toward  centralization  in  owner- 
ship in  the  electric  field  of  operation  is  an  illustration. 
This  has  been  greatly  promoted  by  the  development 
of  the  hydro-electric  and  central  power  stations  which 
furnish  power  to  numerous  plants  in  certain  sections 
thruout  various  parts  of  the  country.     These  corpora- 


168        BUSINESS  AND  THE  GOVERNMENT 

tions  are  state-wide,  powerful  financial  bodies  and  are 
the  most  important  to  regulate.  In  New  Jersey,  for 
example,  if  each  local  unit  were  left  to  regulate  as  it 
pleased  the  activities  of  the  New  Jersey'Public  Service 
Corporation,  rank  confusion  would  be  the  result,  the 
cost  would  be  tremendous,  and  it  is  doubtful  if,  on  the 
whole,  any  good  results  would  accrue.  A  corpora- 
tion, for  many  good,  justifiable  and  valid  reasons, 
would  rather  deal  with  a  strong  central  state  commis- 
sion than  with  such  a  riot  of  regulation.  In  fact,  few 
cities  can  afford  to  maintain  a  competent  regulating 
bod^^  A  similar  controversy  in  many  ways  is  found 
in  the  clash  between  the  State  and  the  Federal  Gov- 
ernments. Here,  again,  it  is  growing  more  evident 
that  centralization  of  management  and  capital,  with 
the  economic  elimination  of  state  lines,  is  breaking 
down  more  and  more  local  state  regulation  with  its 
forty-eight  separate  regulating  agencies — a  cumber- 
some, expensive  and  hampering  method  of  operation. 
19.  Optional  home  rule. — The  principle  of  optional 
home  rule  is  one  that  should  be  given  much  considera- 
tion. Large  cities,  like  Xew  York,  Chicago  and  Phil- 
adelphia, are  in  many  ways  in  a  better  position  to 
handle  these  questions  than  is  a  state  commission. 
Various  items  of  a  regulating  program  may  be  left  to 
the  city;  others  can  best  be  handled  by  the  state.  A 
municipality,  especially  if  it  is  large,  should  have  much 
to  say  in  the  granting  of  franchises.  It  may  well  be 
given  much  power  over  rates  and  service.  The  con- 
trol of  securities  and  the  supervision  of  accounts  can 


PUBLIC  SERVICE  CORPORATIONS  169 

perhaps  best  be  handled  by  the  state.  For  a  time,  at 
least,  our  regulating  program  should  be  elastic  and 
adaptable,  and  we  should  be  most  careful  not  to  break 
down  local  interest  and  citizenship  in  a  quick  scramble 
for  state  regulation.  On  the  whole,  however,  it  would 
seem  as  if  present  tendencies  in  the  organization  of 
public  service  corporations  are  making  necessary  the 
use  of  wider  governmental  units  of  regulation. 

20.  Achievemeiits  of  regulating  bodies. — The  most 
notable  achievements  so  far  have  been  the  tendency 
toward  improvement  and  unification  of  accounting 
systems,  the  elimination  of  unjust  discriminations  and 
the  bettering  of  service  conditions.  At  the  same  time, 
in  most  of  the  industries,  rates  had  a  downward  tend- 
ency until  the  great  increase  in  costs  after  the  war 
forced  in  numerous  instances  an  increase  in  rates  to 
meet  the  emergency.  State  commissions  found  wide- 
spread discriminations  in  the  fields  of  several  of  the 
public  utilities.  In  almost  every  instance,  the  public 
utilities  have  cooperated  with  the  commissions  in  put- 
ting an  end  to  these  practices.  The  Interstate  Com- 
merce Commission  has  practically  stamped  out  the 
discriminating  practices  on  the  railroads  that  pre- 
vailed up  to  a  few  years  ago. 

21.  Powers  of  commissions. — Most  laws  empower 
the  commissions  to  prescribe  standards  of  service  and 
they  have  done  so  for  each  of  the  utility  industries. 
They  have  also  employed  investigators  to  supervise 
the  application  of  these  standards  thruout  the  terri- 
tory, to  the  great  benefit  of  the  public  generally.     Kx- 


170        BUSINESS  AND  THE  GOVERNMENT 

cept,  perhaps,  in  the  electric  traction  field,  the  work 
has  not  been  seriously  interfered  with  by  partisan 
politics  creeping  into  the  ranks  of  the  commissioners. 
Furthermore,  the  courts  have  seldom  interfered  with 
commission  regulations  pertaining  to  service. 

22.  Net  income  and  distribution. — The  regulation 
of  rates  involves  two  important  points:  First,  the 
total  net  income  which  the  utilities  shall  be  allowed  to 
earn  in  each  case;  second,  the  distribution  of  the  net 
income  among  the  several  classes  of  consumers  in  such 
a  way  that  all  may  share  equitably  in  the  total  cost  of 
the  service.  The  latter  feature  of  rate  regulation  is 
a  matter  of  discrimination.  The  public  seems  to  feel 
that  it  is  being  duly  protected  from  unjust  discrimi- 
nation thru  the  commission's  supervision  of  rate 
schedules. 

The  first  feature  of  rate  regulation — the  determina- 
tion of  the  aggregate  net  income — is  in  a  hopeless  state 
of  confusion.  From  an  economic  standpoint,  such 
net  income  must  be  sufiicient  to  attract  new  capital 
into  the  industries.  The  economist,  therefore,  is  inter- 
ested, not  so  much  in  the  manner  of  determining  this 
amount  as  in  the  amount  itself.  The  courts,  however, 
have  interposed,  for  the  guidance  of  the  commissions, 
a  legal  fiction  to  the  effect  that  rates  maj'^  not  be  re- 
duced below  a  point  that  will  afford  a  fair  return  on 
the  present  value  of  the  properties  employed  in  the 
serv^ice.  This  rule  has  produced  a  conflict  between 
the  commissions  and  the  courts,  the  effect  of  which  has 
been  to  embarrass  seriously  the  commissions  and  to 


PUBLIC  SERVICE  CORPORATIONS  171 

create  in  the  minds  of  the  pubHc  a  distrust  of  the  entire 
regulation  program. 

23.  Valuation  of  properties. — The  valuation  of 
steam  railroads,  nearing  completion  under  the  direc- 
tion of  the  Interstate  Commerce  Commission,  is  crys- 
tallizing the  opinions  of  commissioners  on  the  subject 
of  value.  They  feel  that  land,  machinery,  apparatus 
and  equipment  used  for  public  utility  purposes  should 
be  valued  differently  from  similar  properties  used 
in  competitive  enterprises  of  a  private  nature.  They 
take  the  position  that  the  owners  of  public  utility  en- 
terprises should  be  protected  from  rate  reductions 
only  to  the  extent  that  they  themselves  have  made  sac- 
rifices in  the  construction  of  their  plants  and  in  the 
develojDment  of  their  business.  Consequently,  they 
say  that  when  a  company  has  been  so  prosperous  as  to 
earn  and  set  aside  a  substantial  surplus  in  addition  to 
the  payment  of  operating  expenses,  depreciation  and 
reasonable  dividends,  this  surplus  should  not  be  used 
as  a  basis  of  increasing  the  net  income  to  be  allowed 
the  enterprise  in  the  future.  This  principle  also,  they 
say,  applies  equally  to  the  increase  in  land  values  re- 
sulting from  the  growth  of  population  and  to  land 
grants  and  other  donations  made  by  public  authorities 
and  private  individuals  for  the  purpose  of  hastening 
the  establishment  of  public  utilities. 

The  courts,  on  tlie  other  hand,  have  decided  that  the 
constitutions,  both  state  and  Federal,  forbid  the  state 
to  take  private  property  for  public  use  without  a  just 
compensation,  and  that  when  a  regulating  commission 


172        BUSINESS  AND  THE  GOVERNMENT 

reduces  rates  to  a  point  which  will  not  permit  a  public 
utility  company  to  pay  a  fair  return  for  interest  and 
profit  on  the  present  value  of  its  property,  this  con- 
stitutional protection  is  being  violated.  The  courts, 
therefore,  require  that  in  rate  regulation  the  present 
value  of  the  properties  be  ascertained  by  the  commis- 
sions, and  that  the  net  income  allowed  be  sufficient  to 
pay  a  fair  return  on  such  value.  But  in  this  connec- 
tion, the  courts  have  not  made  clear  exactly  what  they 
mean  by  value. 

24.  Points  in  dispute. — By  this  controversy,  rate 
regulation  has  been  seriously  hindered,  and  the  public 
has  come  to  feel  that  it  tends  not  only  to  retard  the 
regulation  of  rates,  but  to  defeat  the  very  purposes  of 
the  commission  laws.  It  is  becoming  increasingly  dif- 
ficult for  the  public  to  satisfy  itself  that  the  lengthy 
discussions  of  theories  of  value  serve  any  useful  pur- 
pose in  determining  whether  the  stockholders  of  a 
public  utility  company  have  received  and  are  receiving 
returns  sufficient  to  induce  capital  to  flow  freely  into 
the  business. 

Another  point  is  that  the  uncertainty  with  regard  to 
the  amount  of  net  income  to  which  public  utilities  are 
entitled  under  public  regulation,  promotes  speculation 
in  the  ownership  of  these  public  utilities.  The  very 
theory  of  value,  that  many  of  the  leading  court  deci- 
sions seem  to  favor,  invites  investment  in  public  utility 
enterprises.  These  are  made  not  only  for  the  sake  of 
a  fair  return  but  also  to  enable  a  few  individuals, 
usually  the  promoters  of  the  enterprise,  to  lay  stakes 


PUBLIC  SERVICE  CORPORATIONS  173 

on  the  probability  of  unearned  increments  accruing  to 
land  value,  increases  in  commodity  and  labor  prices, 
and  the  surpluses  from  operation.  Such  promoters 
are  speculators  and  their  interest  in  public  utility 
enterprises  seldom  extends  beyond  the  initial  period 
and  the  flotation  of  security  issues. 

25.  Regulation  of  seciiritij  issues. — The  public 
looks  to  the  commissions  to  put  a  stop  to  these  prac- 
tices. In  recent  years  the  commissions  have  been  em- 
powered to  regulate  the  issue  of  stocks  and  bonds  of 
public  utility  companies  so  that  such  issues  may  bear 
a  proper  relation  to  the  investments  actually  made. 
Such  su2:)ervision,  however,  touches  only  indirectly 
conditions  that  have  been  handed  down  from  the  past. 
There  are  many  who  fear  that  stock  and  bond  provi- 
sions may  result  in  establishing  the  speculative  values 
fixed  by  j^romoters  in  earlier  years. 

26.  Regulation  of  public  ntilities  still  in  develop- 
mental stage. — Up  to  the  entrance  of  the  United 
States  into  the  war  the  public  regulation  of  utilities 
was  in  an  experimental  stage.  Still  more  radical  ex- 
periments are  the  outcome  of  our  belligerency.  Some 
of  the  possible  results  of  these  experiments  so  far  as 
the  railways  are  concerned  are  pointed  out  in  tlie 
ISIodern  Business  Text  on  "Railway  TrafHc."  At 
this  time  no  one  can  forecast  how  extensive  will  be 
the  intervention  of  the  Government  in  public  utili- 
ties of  all  kinds. 

If  regulation  rather  than  government  ownership  is 
to  be  the  outcome,  the  public  and  the  public  service 

XXIV— 13 


174,        BUSINESS  AND  THE  GOVERNMENT 

corporations  must  come  to  a  just  recognition  of  the 
claims  of  each  other.  It  is  often  asserted  that  the 
pubhc  and  the  utihty  corporations  are  mutually  an- 
tagonistic. This  is  not  true.  Many  companies  have 
found  that  tlie  public  is  willing  and  anxious  to  be  fair, 
if  that  feeling  is  reciprocated  by  the  corporation  in 
reasonable  rates,  good  service  and  an  evident  desire  to 
meet  the  public  half  way. 

REVIEW 

Why  should  public  service  corporations  favor  state  control  as 
against  local  municipal  control  ? 

If  public  service  corporations  are  regulated  as  to  rates  and 
quality  of  service,  are  they  not  entitled  to  protection  against  com- 
petition or  even  undue  interference  on  the  part  of  the  local 
municipalitj'  ? 

What  disadvantages  would  there  be  in  New  Jersey  following  a 
policy  of  local  municipal  control  over  the  Public  Service  Cor- 
poration of  New  Jersey? 

Are  franchises  for  100  years  justifiable  from  the  viewpoint  of 
(1)  the  company,  (2)  the  public,  (3)  future  generations?  Give 
reasons  for  your  answer. 

Why  is  it  claimed  that  the  public  and  the  public  service  cor- 
porations are  mutually  antagonistic?  How  can  their  interests  be 
reconciled? 

Under  what  conditions  would  you  consider  trolley  lines  sup- 
plementary to  or  in  competition  with  a  railroad? 


CHAPTER  IX 

LOCAL  PUBLIC  UTILITIES 

1.  Multiplicity  of  municipal  activities, — Xo  more 
vital  issue  confronts  public  utilities  today  than  the 
question  of  government  ownership  and  management. 
In  some  countries  this  tendency  lias  already  pro- 
gressed far.  The  success,  as  it  is  viewed  by  many 
writers,  of  English  and  German  cities  in  managing 
street-car  systems,  gas  and  electric  plants,  water- 
works and  similar  utilities,  is  constantly  brought  to 
the  attention  of  the  American  public.  The  American 
city  is  urged  to  go  into  every  line  of  managerial  ac- 
tivity, including  such  varied  endeavors  as  supplying 
gas  and  electricity,  running  traction  systems  and  fer- 
ries, managing  slaughter  houses,  ])ublic  restaurants, 
markets,  bakeries,  pawn  shops,  loan  societies,  sav- 
ings bank,  and  many  others,  besides  providing  school 
lunches  and  legal  aid.  ]Many  of  these,  under  certain 
circumstances,  may  be  desirable  activities  for  a  city 
government  to  undertake,  but  as  one  scans  the  items 
on  the  ever  increasing  list,  one  naturally  looks  for  the 
principles  which  guide  their  selection.  The  discussion 
in  this  chaj)ter  must  be  confined  to  those  important 
municipal  utihties  around  which 'tlie  main  controversy 
centers.     These  include  waterworks  and  gas  and  elec- 

175 


176        BUSINESS  AND  THE  GOVERNMENT 

trie  light  and  transit  companies.  European  cities 
liave  gone  into  the  operation  of  these  utihties  exten- 
sively! In  the  case  of  waterworks,  and  to  a  degree 
in  the  case  of  electric  light  and  gas  companies,  Ameri- 
can cities  have  also  made  considerable  progress  to- 
ward complete  municipal  ownership  and  management. 
Can  any  principles  of  successful  operation  be  deter- 
mined which  would  lead  one  to  decide  whether  or  not 
government  ownership  and  management  is  generally 
preferable  to  private  management? 

2.  Mimicipal  ownersJiij)  in  the  United  States: 
waterworks. — At  the  beginning  of  the  last  century 
there  were  in  the  United  States  sixteen  water  plants, 
only  one  of  which  was  municipally  owned.  By  the 
close  of  the  century  there  were  about  3,500  plants,  of 
which  more  than  one-half  were  publicly  managed. 
Most  of  the  larger  cities  of  the  United  States  now  own 
their  waterworks,  the  only  exception  being  San  Fran- 
cisco. In  general  it  may  be  said  that  there  are  three 
publicly  managed  waterworks  to  one  privately  man- 
aged plant  in  the  United  States.  Upon  good  water 
depend  the  sanitation  and  comfort  of  a  city's  popula- 
tion. To  obtain  these  benefits  it  is  necessary,  espe- 
cially in  the  larger  cities,  for  a  government  agency  to 
control  and  to  guard  water  sites,  and  they  generally 
prefer  to  manage  the  plant — chiefly  with  sanitation 
in  mind.  There  are,  nevertheless,  instances  of  cities 
wishing  to  return  to  private  management  after  testing 
public  management  of  the  waterworks. 

3.  Electric  light  plants. — Next  to  the  waterworks, 


LOCAL  PUBLIC  UTILITIES  177 

electric  light  plants  have  the  largest  percentage  of 
municipally  managed  plants.  In  1917  there  were 
2,318  municipally  managed  electric  light  companies 
in  the  L^nited  States;  an  increase  of  85.1  per  cent  over 
the  number  operated  in  1907.  In  comparison  with 
this  there  were  4,224  privately  owned  commercial 
plants,  with  an  increase  of  22.0  per  cent  over  the  num- 
ber in  1907.  These  figures  are  somewhat  misleading, 
however,  for  when  we  take  into  consideration  the  reve- 
nue of  the  commercial  plants  as  compared  with  the 
revenue  of  public  plants,  we  find  the  former's  gross 
revenue  total  was  $486,000,000  in  1917,  as  compared 
with  the  latter's  $40,000,000.  By  far  the  largest 
number  of  municipal  plants  are  in  cities  with  a  popu- 
lation under  five  thousand.  Of  the  total  of  2,318  mu- 
nicipally owned  plants  1,940  serve  such  cities. 

JNIost  of  the  larger  cities  in  the  country  are  supplied 
from  privately  owned  plants.  The  electric  light  in- 
dustry is  a  recent  development,  so  that  small  cities 
have  been  able  to  undertake  to  supply  this  public  need 
without  breaking  past  contracts  or,  in  most  cases, 
competing  with  private  plants. 

4.  Gas  works. — Next  in  order  comes  the  develo])- 
ment  in  the  field  of  gas  production.  By  1907,  accord- 
ing to  the  National  Civic  Federation  report  on  mu- 
nicipal and  public  ownership  of  })ii})lic  utilities,  tlicre 
were  twenty-five  municii)ally  owned  gas  plants  in  tiic 
United  States  and  ten  in  Canada.  Since  the  gas  in- 
dustry is  much  older  than  the  electric  lighting  indus- 
try, private  plants  were  organized  early  and   cities 


178        BUSINESS  AND  THE  GOVERNMENT 

have  not  been  able  to  enter  the  field  without  buying 
out  or  competing  with  existing  private  plants. 

5.  Street  railtsoays. — The  United  States  has  had 
comparatively  little  experience  with  municipal  owner- 
ship of  street-car  lines.  The  city  of  Monroe,  Louis- 
iana, with  only  twelve  thousand  inhabitants,  has  such 
a  line.  The  city  of  San  Francisco,  after  innumerable 
difficulties,  finally  managed  to  start  operating  10.9 
miles  of  track  in  December,  1912.  By  the  end  of 
1915,  the  number  of  miles  operated  was  increased  to 
about  forty.  The  city  of  Bismarck,  North  Dakota, 
also  operates  a  short  street-railway  line  to  the  state 
capital. 

6.  Municipal  ownership  in  Europe. — In  Europe, 
the  movement  for  municipal  ownership  has  gone  much 
further.  Mr.  Frederic  C.  Howe  in  "The  British 
City"  gave  the  following  figures  for  England : 

ENGLAND 

Kind  of                            Public  Undertakings  Private  Undertakings 

Enterprise  No.  Total  Capital  No.        Total   Capital 

Water    1,045  $330,914,491  251             $197,850,964 

Gas     256  173,919,089  454  375,348,459 

Electricity    334  155,728,000  174  133,838,750 

Street  Railways   142  199,061,278  154  83,660,551 

1,777  $759,622,858  1,033  $790,698,724 

There  are  also  a  large  number  of  Continental  cities 
which  operate  enterprises  of  this  character. 

7.  The  issue:  regulation  or  ownership. — These 
utilities,  as  natural  monopolies,  are  marked  off  from 
the  general  field  of  industrial  activity  by  the  fact  that 


LOCAL  PUBLIC  "UTILITIES  179 

they  cannot  be  effectively  regulated  by  competition. 
With  them  the  Government  has  one  of  only  three  pol- 
icies to  follow:  (1)  to  regulate;  (2)  to  own  and 
manage;  (3)  to  leave  alone.  The  last  policy  is  a 
recognized  impossibility  under  present  social  and  eco- 
nomic conditions.  The  local  government  must  either 
regulate  or  manage,  and  the  real  question  before  the 
American  public  is:  Can  we  have  efficient,  thoro- 
going  regulation  of  our  private  water,  gas,  electric 
light  and  transit  systems  so  as  to  preserve  for  the  city 
the  advantages  of  private  management  and  to  prevent 
the  abuses  of  monopoly  conditions ;  or  is  it  possible  to 
secure  better  or  equitable  conditions  of  public  service 
only  under  a  regime  of  local  government  ownership 
and  management?  This  is  a  question  whose  answer 
involves  billions  of  dollars  and  the  health  and  happi- 
ness of  a  large  part  of  the  population  of  this  country. 
So  closely  are  these  public  utilities  built  into  the  life 
of  our  cities  that  they  have  become  part  of  their  nor- 
mal environment,  really,  as  Mr.  Wilcox  has  said, 
"supplementary  to  sunshine,  the  landscape,  and  the 
an*. 

8.  Why  municipal  ownership  is  undertaken. — Mu- 
nicipal ownership  has  been  undertaken  for  a  variety  of 
reasons.  In  America  one  imjjortant  reason  is  the 
alleged  corruption  of  officials  by  the  pubhc  utihty 
corporations  and  the  resulting  wave  of  public  indig- 
nation. 

On  the  other  hand,  in  fairness  to  many  accused  of 
corruption,  it  must  be  remembered  that  there  is  much 


180        BUSINESS  AND  THE  GOVERNMENT 

justification  for  the  statement  made  by  directors  and 
managers  of  public  utilities,  that  much  of  the  bribery 
and  corruption  came  mainly  from  strike  bills  and 
threats  by  legislators  and  other  officials.  Bribery  was 
the  surest  and  cheapest  way  to  secure  justice  and  to 
save  themselves  from  oppression.  It  is  much  nearer 
the  truth  to  state  that  now  the  cities  are  largely  free 
from  a  condition  of  general  corruption.  In  many 
ways,  then,  the  movement  for  municipal  ownership 
began  rather  as  a  reform  than  as  a  business  movement. 
With  corruption  eliminated,  the  aspects  of  municipal 
ownership  in  the  United  States  would  be  completely 
changed. 

9.  Moral  asjject  of  municipal  ownership. — With  the 
move  to  stop  corruption  went  the  idea  that  under 
municipal  ownership  lower  rates  and  better  service 
could  be  secured.  Here  again,  whether  justified  or 
not,  the  prevalent  opinion  that  the  public  utilities  cor- 
poration had  as  its  motto  "The  public  be  damned," 
added  fuel  to  the  fires  of  reform.  Mistaken  as  this 
view  often  was,  there  is  no  question  that  in  the  minds 
of  many,  the  advocates  of  municipal  ownership  posed, 
as  the  sole  promoters  of  honest  municipal  government, 
and  often  succeeded  in  convincing  large  numbers  of 
the  public  that  those  who  were  opposed  to  municipal 
ownership  were  in  favor  of  gang  rule. 

These  views  were  often  wrong;  but  that  they  existed 
cannot  be  doubted. 

10.  Netv  point  of  view. — Within  the  last  decade  a 
broader,  more  equitable  view  has  obtained,  and  we  are 


LOCAL  PUBLIC  UTILITIES  181 

now  able  to  study  the  problem  in  a  more  just  and 
reasonable  way.  In  the  eyes  of  the  public,  municipal 
ownership  is  now  seen  to  be  fundamentally  an  eco- 
nomic i^olicy,  while  the  public  utility  corporation  on 
its  part  has  been  learning  that  it  is  not  only  wise  but 
remunerative  to  give  good  service,  charge  reasonable 
rates  and  keep  out  of  politics. 

11.  Favorable  interest  rates  secured. — Some  of  the 
economic  aspects  of  the  question  are  of  special  inter- 
est, particularly  that  of  the  financial  advantages  which 
are  thought  to  come  thru  municipal  ownership.  It  is 
claimed  that  under  a  system  of  government  ownership 
a  city  is  able,  with  its  prestige  and  with  its  power  to 
tax,  to  borrow  money  at  a  lower  rate  of  interest  than 
private  companies  can.  A  question  may  be  raised, 
however,  as  to  how  long  these  favorable  rates  would 
prevail  if  municipalities  generally  went  into  industry, 
with  possible  liability  of  loss  and  consequent  increase 
in  taxation.  It  is  possible  tliat  under  such  circum- 
stances much  of  this  supposed  financial  advantage 
would  be  lost.  And,  again,  some  of  tlie  best  corpora- 
tions can  borrow  as  cheaply  as  many  of  the  cities — 
especially  the  small  ones. 

12.  No  clividends  on  watered  stock. — It  is  also 
claimed  that  tlie  city  need  not  pay  dividends  on  stock 
issues,  only  interest  on  actual  loans.  In  many  in- 
stances, private  companies  have  been  capitalized  far 
beyond  actual  investments  and  wish  to  pay  dividends, 
in  consequence,  on  watered  stocks.  Tender  nninicipal 
ownership  this  juggling  of  finance,  the  speculating  in 


182        BUSINESS  AND  THE  GOVERNMENT 

profits  and  dividends  on  fictitious  values,  it  is  claimed, 
is  done  away  with.  As  a  result,  the  consumer  gains  in 
lower  prices  and  better  service.  It  is  a  question  of 
fact  and  of  degree.  Some  cities  waste  as  much  in  the 
wrong  use  of  loans  as  would  easily  pay  dividends  on 
much  watered  stock.  Moreover,  not  all  companies 
have  the  watered  stock. 

13.  Expense  of  regulation. — Another  saving,  and  a 
charge  which  should  be  directly  added  to  the  cost  of 
private  management,  is  that  of  adequate  regulation. 
If  public  ownership  does  not  exist,  effective  regulation 
must  be  employed  to  overcome  monopoly  conditions. 
Effective  regulation  of  transit  lines,  gas  and  electric 
light  companies  requires  a  force  of  experts  and  care- 
ful supervision,  and  the  cost  of  such  regulation  is  high. 
The  advocates  of  municipal  ownership  assert  that  this 
cost  is  a  proper  charge  against  private  management. 
But  many  experts  believe  that  municipal  management 
needs  as  much  supervision  as  private  management, 
and  that  the  cost  of  regulation  would  not  actually  be 
saved.  Theoretically,  municipal  ownership  and  oper- 
ation seem  to  give  decided  financial  advantages.  The 
supposed  financial  savings,  however,  are  largely  offset 
by  other  drawbacks  and  this  line  of  argument  gener- 
ally assumes  that  equal  skill  and  energy  will  be  avail- 
able for  management,  an  assumption  rarely  borne  out 
by  experience. 

14.  Better  labor  conditions  under  municipal  owner- 
ship.— On  the  part  of  labor,  it  is  claimed  that  public 
management  means  better  wages  and  working  condi- 


LOCAL  PUBLIC  UTILITIES  183 

tions.  It  is  probable  that  in  England,  where  labor 
conditions  have  been  poor,  municipal  ownership  has 
been  seized  upon  by  labor  as  one  of  the  means  by 
which  these  conditions  may  be  bettered.  The  labor 
party  has  had  great  political  influence  in  that  country. 
It  is  claimed  also  that  the  inevitable  tendency  of  pri- 
vate ownership  is  to  force  down  wages  and  keep  labor 
conditions  at  a  low  ebb.  As  a  result  constant  friction, 
frequently  culminating  in  a  strike,  has  been  manifest. 
It  is  asserted  that  municipal  ownership  can  do  away 
with  these  bad  labor  conditions  to  a  large  extent  and 
that  under  it  more  equitable  conditions  will  prevail. 
And  yet  in  Cleveland  a  few  years  ago  the  workmen  in 
the  municipal  waterworks  went  out  on  strike,  and, 
on  the  other  hand,  many  private  companies  meet  with 
little  or  no  discontent.  Again,  if  for  political  reasons 
wages  are  raised  unduly,  the  result  is  an  injustice  to 
the  taxpayers. 

15.  Great  betterment  in  social  and  political  condi- 
tions claimed. — Advocates  of  public  management  in- 
sist that  under  such  a  policy,  social,  political  and  ethi- 
cal conditions  are  much  improved.  In  fact,  many 
assert  that  the  betterment  of  social  and  political  con- 
ditions is  so  great  as  to  offset  any  poor  financial  re- 
sults which  may  possibly  be  shown  in  a  comparison 
of  private  and  public  plants.  Corruption  and  class 
struggle  are  said  to  be  eliminated.  Public  utilities 
are  looked  upon  as  servants  of  the  people  and  are  run 
from  that  viewpoint.  Housing  conditions,  thru  city 
planning  coordinated  with  the  traction  systems,  are 


184         BUSINESS  AND  THE  GOVERNMENT 

improved.  The  temptation  to  control  or  influence  the 
press  is  stopped.  Yet  experience  in  other  cities  seems 
to  uphold  the  opposite  view.  Naturally  conditions 
vary  as  the  poles. 

16.  Europemi  conditions  different  from  those  in  the 
United  States. — All  in  all,  municipal  ownership  would 
seem  theoretically  to  give  many  advantages,  but  expe- 
rience does  not  wholly  support  this  theory.  Most  of 
the  arguments  for  municipal  oM^nership  come  from 
those  who  are  impressed  with  the  seemingly  good  re- 
sults shown  by  European  cities.  Here  we  must  be 
careful  about  comparative  data.  We  must  remember 
that  in  England,  Scotland  and  Germany  a  high  type 
of  city  government  prevails.  This  condition  has  been 
the  result  of  many  years  of  struggle  and  improve- 
ment. The  aristocratic  social  conditions  in  those 
countries  develop  an  extremely  able  type  of  municipal 
official.  The  form  of  city  govermnent  favors  this 
type.  Homogeneous  populations  are  also  found  in 
Europe,  whereas  American  cities  in  nearly  every  part 
of  the  country  are  struggling  with  a  considerable  per- 
centage of  foreign-born  non-English-speaking  peo- 
ple. This  difference  in  municipal  conditions  was  seen 
in  1905,  when  the  mayor  of  Chicago  invited  INIr.  Daly- 
rymple,  manager  of  the  Glasgow  municipal  tramways, 
to  confer  with  him  upon  municipal  management  of  its 
street  railways,  for  whicli  Chicago  had  just  voted. 
Mr.  Dalyrymple  arrived  in  the  United  States  a  strong 
advocate  of  municipal  ownership.  A  few  weeks'  resi- 
dence in  Chicago,  however,  convinced  him  that  he  had 


LOCAL  PUBLIC  UTILITIES  185 

failed  to  allow  for  the  complete  dissimilarity  of  con- 
ditions. He  opposed  municipal  ownership  in  Chi- 
cago. 

17.  Municipal  ownership  in  France. — One  also  re- 
ceives the  impression  from  some  authorities  that  the 
European  verdict  in  favor  of  municipal  ownership  is 
unanimous.  In  France,  however,  where  Socialism 
has  made  much  headway  and  where  state  management 
of  industrial  undertakings  is  to  a  large  extent  preva- 
lent, an  entirely  different  story  is  told  by  Professor 
Paul  Leroy-Beaulieu,  who  gives  in  full  detail  the  rea- 
son why  French  cities  have  followed  a  different  plan. 
The  experience  in  Paris  is  clear,  and  the  writer  is  a 
high  authority. 

It  is  his  opinion  that  the  municipalization  of  city 
public  utilities  has  really  not  gone  far  in  France,  altho 
many  members  of  the  Socialist  party  as  well  as  the 
Radicals  have  been  inclined  to  support  it.  When,  for 
example,  in  the  city  of  Paris  most  of  the  concessions 
for  gas,  electricity  and  water,  and  the  street  passenger 
traffic  expired,  early  in  the  twentieth  century,  the 
INIunicipal  Council  would  certainly  have  taken  over 
tliese  different  services,  had  the  sentiment  in  favor 
of  municipal  ownership  and  management  been  impera- 
tive. Instead  of  following  that  course,  however,  the 
Council  made  new  concessions  to  jjrivate  companies 
for  all  the  different  services  mentioned.  These  con- 
tracts were  in  different  forms  and  for  varying  terms 
of  years.  All  of  the  services  mentioned  were  in- 
cluded. 


186         BUSINESS  AND  THE  GOVERNMENT 

A  striking  illustration  is  the  concession  given 
to  the  Paris  Gas  Companj'^  which  expired  in  1905, 
after  having  been  enjoyed  for  three-quarters  of  a  cen- 
tury by  that  corporation.  The  municipality  in  this 
case  owns  the  gas  works,  but  the  manufacturing  of 
the  gas  is  in  the  hands  of  a  company  which  furnishes 
the  working  capital  and  shares  the  profits  with  the 
city.  The  city  keeps  control  by  a  provision  to  the 
effect  that  after  two  years'  notice,  it  may  end  the  con- 
cession at  the  end  of  the  succeeding  five  year  period. 
The  concession  has  been  allowed  to  run  on  beyond 
its  concessive  periods,  and  there  seems  no  reason  to 
doubt  that  this  policy  is  one  most  favored  by  'the 
Municipal  Council.  Similar  arrangements  have  been 
made  with  the  General  Water  Company.  Likewise 
in  connection  with  the  electrical,  heating,  light  and 
motive  power  a  concession  of  a  similar  nature  had 
been  running  for  periods  of  30  years  or  more.  The 
last  arrangement  made  in  1914  conceded  the  city's 
electricity  and  motive  power  to  a  large  financial  group 
called  the  Paris  Compan}-  for  Electrical  Distribution 
and  will  continue  until  1940.  In  this  concession,  the 
electric  heating  and  lighting  company  has  a  monopoly, 
but  as  regards  electric  motive  power  the  Municipal 
Council  reserves  the  right  to  permit  other  companies 
to  furnish  the  power  if  it  so  desires. 

Similar  arrangements  again  have  been  made  regard- 
ing the  subways.  Under  the  concession  for  75  years 
the  company  does  all  of  the  work  of  construction, 
the  city  simply  approving  and  supervising  the  plans 


LOCAL  PUBLIC  UTILITIES  187 

and  their  execution,  and  sharing  the  profits,  the  share 
being  based  on  the  number  of  passengers  carried.  An- 
other concession  for  the  older  subway  was  made  for  40 
years  after  the  completion  of  the  work.  In  this  case, 
the  city  assumes  the  cost  of  tunneling,  the  company 
makes  the  road,  builds  the  stations,  furnishes  the  roll- 
ing stock  and  runs  the  road,  giving  the  city  one  third 
of  the  gross  receipts  and  a  certain  portion  of  the  in- 
creased traffic  when  it  surpasses  the  figure  agreed  upon. 

Along  quite  similar  lines,  the  city  has  renewed  for 
a  period  of  50  years  with  large  shares  in  the  profits, 
its  concession  to  all  the  tramway,  omnibus  and  auto- 
bus companies.  Some  of  these  concessions  to  private 
companies  extend  as  far  as  1980. 

This  general  condition,  varying  with  different  com- 
panies, has  brought  about  on  the  whole  considerable 
reduction  in  the  price  paid  formerly  by  the  public 
for  such  services;  and  inasmuch  as  it  gives  to  the  city 
a  considerable  participation  in  the  profits  it  seems  to 
have  met  with  the  general  approval  of  the  public. 
The  revenues  were  very  considerable  in  1910,  for  ex- 
ample, some  thirty-five  millions  of  francs  were  re- 
ceiv^ed  from  gas,  twenty-eight  milhons  from  water, 
eighteen  millions  of  francs  from  sul)ways,  and  some 
twelve  millions  from  electricity.  Of  course,  as  the 
city  had  to  borrow  for  the  companies  to  carry  thru 
some  of  these  enterprises,  part  of  tliis  income  must  be 
used  for  meeting  the  interest  on  loans,  })ut  pr()bnl)ly 
one-half  of  the  amount  now  received  can  be  added 
to  the  regular  revenues.     It  is  estimated  that  by  thf 


188        BUSINESS  AND  THE  GOVERNMENT 

middle  of  the  present  century  from  150  to  200  millions 
of  francs  at  least  will  be  received  from  the  city,  and 
probably  much  more  than  one-lialf  will  be  net  profit. 

jNIost  of  the  other  important  cities  of  France  have 
followed  in  this  regard  the  example  of  Paris.  Some 
exceptions  are  found  in  those  towns  in  which  the  muni- 
cipal councils  are  controlled  by  Socialists.  In  this 
exception  given,  some  of  the  utilities,  especially  light- 
ing have  been  municipalized.  Professor  Leroy  Beau- 
lieu  is  of  the  opinion,  however,  that  as  a  rule  this  ex- 
periment has  not  been  a  success.  He  cites  the  city 
of  Elbeuf,  in  which  the  Municipal  Council  decided  to 
municipalize  the  gas.  The  enterprise  jDroved  really 
disastrous,  running  at  a  decided  loss  to  the  Treasurer. 
This  so  affected  the  Mayor,  who  represented  his  town 
in  the  Chamber  of  Deputies,  that  on  account  of  the 
unpopularity  which  resulted  he  committed  suicide 
since  the  move  had  been  made  with  his  hearty  support. 
A  new  election  was  held  shortly  afterward  and  as  a 
result  the  new  municipal  council  at  once  leased  the 
city  gas  interests  to  a  private  company. 

Various  other  enterprises  of  a  Socialistic  nature 
have  been  suggested:  for  example  the  Caillaux  Cab- 
inet authorized  the  Paris  municipality  to  establish 
butcher  shops  and  bakeries  but  the  public  was  so  op- 
posed to  it  that  the  Poincare  Cabinet  withdrew  the 
biU. 

Other  arrangements  along  somewhat  similar  lines 
show  the  same  general  facts.  Along  the  lines  of 
ownership  of  public  enteri)rises  have  been  included 


LOCAL  PUBLIC  UTILITIES  189 

the  cheap  working  men's  homes,  usually  with  the  pro- 
vision that  the  town  interests  come  to  an  arrange- 
ment  with  some  cooperative  or  stock  company  who 
will  borrow  from  the  city  at  a  low  rate  of  interest  the 
funds  for  building  houses;  the  idea  being  that  tlie 
municipality  will  not  actually  construct  or  manage 
such  enterprises. 

18.  Policy  of  favoring  ^workmen  by  reduced  rates. 
— In  comparing  American  and  European  cities  even 
in  specific  and  seemingly  simple  items,  such  as  fares 
and  service,  great  care  must  be  taken.  In  consider- 
ing the  relative  advantages  in  fares  in  one  country 
over  another,  one  must  look  into  the  question  of  tlie 
distance  and  the  system  of  transfers.  Mucli,  for  ex- 
ample, is  made  of  the  fact  that  many  European  cities 
favor  the  workmen  by  reduced  rates  during  tlie  early 
morning  and  the  evening  hours.  Yet  under  private 
management  in  the  United  States  and  in  Canada  this 
system  is  becoming  more  extended.  INIontreal,  tlie 
largest  city  in  the  Dominion,  has  a  rate  of  eight  tickets 
for  a  quarter,  usable  between  five  and  eight  o'clock  in 
the  morning  and  from  five  to  seven  in  the  evening, 
while  six  tickets  for  a  quarter,  or  twenty-five  for  one 
dollar,  can  be  bought  for  ordinary  travel,  and  ten 
tickets  for  a  quarter  are  sold  to  school  children. 
American  cities  are  adopting  a  similar  plan. 

We  have  in  this  country  the  custom,  pretty  gener- 
ally, of  a  single  fare.  In  most  of  the  European  cities 
it  is  customary  to  charge  a  variety  of  fares,  accc^rd- 
ing  to  distance.     The  City  of  Glasgow  has  owned  and 

XXIV — 14 


190        BUSINESS  AND  THE  GOVERNMENT 

controlled  its  municipal  utilities  for  a  long  time.  The 
street  railways  have  an  increasing  fare.  Careful 
studies  have  been  made  of  this  plan  in  Glasgow,  and 
it  is  by  no  means  sure  that  the  plan  is  always  good. 
In  the  first  place,  this  rate  of  fare  increasing  with  dis- 
tance, which  is  abnost  universal  in  Europe,  tends  to 
congest  the  population  within  the  lowest-fare  area. 
The  second  point  is  that  as  a  rule  those  cities  do  not 
have  a  system  of  transfers.  When  you  change  from 
one  line  to  another  you  pay  your  fare  again.  So,  it 
is  argued,  on  the  whole  the  average  fare  paid  by  the 
usual  passenger  is  about  as  high  as  it  is  here.  If  a 
man  transfers  twice,  he  must  pay  three  fares. 

19.  Poor  systems  of  municipal  accounting. — Again, 
one  must  keep  in  mind  the  fact  that  methods  of  keep- 
ing municipal  accounts,  especially  in  this  country,  are 
often  faulty. 

Authorities  generally  in  many  of  the  states  have 
seen  the  necessity  of  some  governmental  supervision  of 
municipal  reports.  One  purpose  is  to  have  the  sys- 
tems of  classification  and  accounting  uniform  in  order 
that  the  utilities  of  the  same  class  in  one  city  may  be 
compared  to  advantage  with  those  in  other  cities. 
Moreover,  in  few  of  the  cities  is  there  any  system 
that  is  really  scientific  and  adequate. 

The  Public  Service  Commission  of  the  second  dis- 
trict of  the  State  of  New  York,  in  its  fifth  annual  re- 
port of  1911,  calls  attention  to  the  fact  that  there  are 
two  cities  and  fortj^-eight  villages  in  the  state  that 
operate  municipal   lighting  plants.     Most   of  them 


LOCAL  PUBLIC  UTILITIES  191 

were  either  unable  or  unwilling  to  adopt  modem  ac- 
counting methods.  Frequently  the  bookkeeping  was 
limited  to  a  mere  record  of  consumer's  accounts  with 
a  simple  statement  of  receipts  and  disbursements, 
practically  no  analysis  or  classification.  In  some 
cases,  the  affairs  of  the  lighting  plant  were  so  closely 
related  to  those  of  the  water  or  other  departments  that 
it  was  impossible  to  determine  the  actual  results  of 
the  operation  in  either  department.  AVhen  munici- 
palities embark  on  business  enterprises  they  should,  of 
course,  adopt  business  methods,  otherwise  as  has  fre- 
quently happened,  the  citizens  believe  that  their  serv- 
ice is  cheap,  when  as  a  matter  of  fact  it  is  not.  For- 
tunately, the  State  of  Xew  York  has  a  good  form  of 
legislation,  the  full  effect  of  which  cannot  probably  be 
reached  for  some  years.  There  has  been,  however, 
a  decided  improvement  in  its  records,  the  state  having 
imposed  upon  the  municipalities  the  uniform  system 
of  accounting. 

According  to  D.  F.  Fggleston  in  "^Municipal  Ac- 
counting," p.  24,  the  State  of  New  York,  in  IDO^,  by 
law  i:)laced  the  accounts  of  her  cities  on  a  uniform 
basis.  This  conflicts  with  the  statement  that  thci-c 
are  2  cities  and  48  villages  operating  municipal  light- 
ing plants  on  inadc(]uate  accounting  basis. 

According  to  tlic  librarian  of  the  Municipal  Uefcr- 
ence  Library,  the  present  law  regarding  the  uniform 
system  of  accounting  for  municij)alities  was  j)assc(i 
in  1908,  and  covered  a  system  of  accounts  for  gas, 
electric  light,  and  telephone  companies  for  the  State 


192        BUSINESS  AND  THE  GOVERNMENT 

of  New  York.  Each  particular  municipality,  under 
the  law,  was  not  obliged  to  change  its  system  of  ac- 
counts until  the  Public  Service  Commission  had  per- 
sonally visited  the  plants  and  classified  the  accounts 
according  to  the  uniform  schedule.  This  being  the 
case,  in  1911  it  is  probable  that  2  cities  and  48  villages 
might  still  be  operating  under  the  old  system  of  ac- 
counts. This  statement  is  the  one  we  are  endeavoring 
to  check  up  at  present. 

20.  Modern  development  effects  advantages  of 
municipal  ownershij). — One  of  the  greatest  advan- 
tages for  a  sj'stem  of  municipal  management  is  that 
various  kinds  of  public  service  plants  can  be  coordi- 
nated into  a  single  scheme  of  operation.  In  this  way 
costs  are  reduced  and  much  saving  in  both  service  and 
rates  results  to  the  public.  On  the  other  hand,  in  the 
private  field  two  counter  developments  may  be  noted. 
In  many  cases,  street  railroads  will  be  found  supply- 
ing facilities  such  as  electric  light  and  power  as  well  as 
transportation.  Since  the  same  power  can  be  used 
for  a  number  of  different  operations,  private  com- 
panies have  likewise  the  opportunity  of  effecting  a 
considerable  money  saving  in  the  use  of  power  thru 
interaction  of  the  different  plants.  From  the  point 
of  view  of  profits  and  ability  to  give  low  rates,  this 
coordination  offsets  many  of  the  advantages  of  public 
ownership  and  management.  In  earlier  times  when 
one  private  company  supplied  a  city  with  gas,  a  sec- 
ond with  electric  light,  a  third  with  street  railways,  and 
a  fourth  with  water,  it  was  apparent  that  if  the  city 


LOCAL  PUBLIC  UTILITIES  193 

owned  all  of  these  the  power  from  the  same  sources 
might  be  used  to  advantage  in  pumping  the  water,  in 
running  the  street  cars  and  in  furnishing  the  electric 
light  and  gas.  To  a  great  extent  this  is  true  and  is  a 
matter  of  economic  significance. 

But  if  these  private  companies  are  combined,  the 
saving  will  be  the  same.  For  example,  the  Public 
Service  Corporation  of  New  Jersey  in  1918  was  sup- 
plying gas  and  electric  light  and  power  for  electric 
street  railway  service  to  146  municipalities  with  a 
population  of  over  2,126,889  people.  As  a  result,  the 
quality,  the  price  and  tlie  continuity  of  service  was 
superior  to  what  could  be  obtained  from  a  number 
of  small  or  struggling  enterprises.  The  Pacific  Gas 
and  Electric  Company  of  California  in  1918  was  op- 
erating in  thirty  counties  of  central  California,  fur- 
nishing electric  light  and  power  to  177  communities, 
besides  furnishing  gas,  water  and  street  sei'vice  in 
many  of  these  cities.  The  area  covered  was  »J7.77-) 
square  miles,  and  about  55  per  cent  of  the  population 
of  California  was  being  served.  The  Central  Illinois 
Public  Service  Company  was  serving  131  communi- 
ties which  were  formerly  supplied  with  power  by  41) 
separate  generating  plants.  By  consolidation  these 
plants  were  reduced  to  eight  and  later  to  four,  cai)able 
of  producing  all  the  needed  energy.  The  Boston 
Edison  Company  now  covers  an  area  embracing  700 
square  miles.  This  argument  for  municipal  owner- 
ship, it  is  thus  seen,  is  largely  superseded  by  this  mod- 
ern movement  in  the  ju-ivate  utility  field.     In  fact,  it 


194         BUSINESS  AND  THE  GOVERNMENT 

would  be  difficult,  even  impossible,  for  a  municipally 
owned  plant  to  cover  such  a  wide  area,  as  such  plants 
are  restricted  in  many  ways  in  their  extension  to  out- 
side cities,  whereas  a  private  company  is  able  to  serve 
a  whole  state,  with  the  economies  resulting  from  such 
concentration. 

21.  Development  of  holding  cofnpanies. — The  de- 
\felopment  of  holding  companies  in  public  utilities  has 
recently  become  important.  Thru  holding  compan- 
ies, unrelated  properties,  widely  distributed — in  many 
cases  over  several  states — have  been  brought  together 
under  one  central  control  and  management.  The 
holding  companies  do  not,  however,  aim  to  kill  com- 
petition thru  monopoly.  The  nature  of  these  business 
activities,  w^ith  their  essentially  local  market,  makes 
it  impossible  for  isolated  or  scattered  public  utility 
companies  to  compete.  Thru  the  holding  company 
profits  and  losses  are  averaged,  purchasing  and  op- 
erating costs  are  lessened,  security  issues  are  made  eas- 
ier, and  thru  standardization  an  increase  in  service  and 
facilities  is  made  possible  and  a  superior  technical  abil- 
ity can  be  secured.  This  development  is  bound  to 
have  a  great  effect  in  preventing  the  extension  of 
municipal  ownership. 

22.  Municipal  government  still  inefficient. — Much 
is  made  of  the  financial  benefits  accruing  to  the  pub- 
lic thru  municipal  ownership.  Yet,  despite  the  un- 
doubted great  improvement  in  city  management  dur- 
ing the  last  decade,  municipal  management  is  still  so 
inefficient  in  comparison  with  private  management  as 


LOCAL  PUBLIC  UTILITIES  195 

probably  to  outweigh  any  financial  advantages  which 
the  advocates  of  municipal  ownership  claim.  Inelas- 
ticity of  management,  favoritism  in  appointments,  in- 
ability of  the  public  to  see  the  value  of  paying  high 
salaries  for  highly  technical  positions,  too  large  a  laboi- 
force,  the  inability  to  resist  the  political  appeal  of 
municipal  employes  or  the  demand  of  consumers,  and 
the  lack  of  initiative  so  often  found,  all  operate  as  a 
dead  weight  on  efficient  government  management. 
And  yet,  doubtless,  cases  may  l)e  found,  especially  in 
small  cities,  where  able  upright  officials  run  a  munici- 
pal plant  on  sound  business  principles  as  efficiently 
as  a  private  company  could. 

23.  Municipal  ownership  advisable  "where  healfh. 
sanitation  and  public  safety  demand  it. — In  general, 
it  may  be  said  that  in  industries  in  whose  conduct 
health,  sanitation  and  public  safety  are  involved,  es])e- 
cially  if  police  protection  is  required,  the  larger  ])ul)Hc 
interests  will  usually  call  for  municipal  management. 
This  probably  is  the  reason,  especially  in  view  of  tlie 
larger  and  larger  concentration  of  poj)ulation,  ^\hy 
municipal  management  of  water  works  is  rapidly  hc- 
coming  prevalent.  People  generally  feel  that  the 
task  of  securing  pure  water  and  keeping  it  from  pol- 
lution, if  large  watersheds  are  to  be  protected,  can  Ix' 
more  satisfactorily  handled  by  governmental  than  l)> 
private  agencies. 

24.  Where  profit  is  the  predominant  motive.  ])rivai( 
management  is  better. — Where  profit  to  the  munici- 
pality and  savings  to  the  ratepayers  are  the  predomi- 


196        BUSINESS  AND  THE  GOVERNMENT 

nant  motives  and  where  effective  public  regulation  is 
possible,  a  system  of  private  management  would  seem 
preferable.  Especially  is  this  true  where  public  util- 
ity corporations  realize  their  peculiar  position  as  pub- 
lic servants  and,  as  a  result,  are  willing  or  can  be 
compelled  to  give  fair  treatment,  good  service  and 
reasonable  rates.  The  policy  of  fair  treatment,  good 
service  and  reasonable  rates  will  bring  its  reward 
in  financial  return  to  any  privately  owned  public  util- 
ity. On  both  sides  there  seems  to  be  a  growing  real- 
ization of  mutual  responsibility. 

25.  Issue  must  he  settled  by  experience. — Every 
one  agrees  that  some  form  of  government  control  of 
public  utilities  must  be  exercised.  There  can  be  no 
doubt  that  conditions  have  improved  under  the  admin- 
istration of  public  service  commissions.  The  question 
of  rigid  public  control  of  public  utilities  seems  to  be 
settled.  Whether  we  shall  eventually  go  fuither  is 
something  that  will  be  settled  by  experience. 

REVIEW 

How  and  to  what  extent  should  a  city  try  to  prevent  conges- 
tion caused  by  concentration  of  population? 

Is  it  possible  for  a  municipally  managed  plant  to  develop  as 
has  the  Public  Service  Corporation  of  New  Jersey? 

Do  you  think  the  public  will  play  fair  with  a  company  follow- 
ing a  policy  of  good  service,  reasonable  rates  and  non-interfer- 
ence in  politics?     Win*? 

Are  there  any  reasons  why  municipal  management  should  be 
more  efficient  than  Federal?     If  so,  what  are  they? 

Do  you  think  a  policy,  like  that  of  Montreal,  of  lower  priced 
trolley  tickets  at  certain  periods  of  the  day,  a  good  financial 
proposition?     Give  your  reasons. 


CHAPTER  X 

TRUSTS  AND  COMBINATIONS 

1.  No  clear-cut  government  policy  recognized. — 
Altho  the  necessity  of  regulation  is  recognized  in  the 
public  service  field  of  business,  a  very  different  ques- 
tion is  presented  when  we  consider  the  extension  of 
governmental  supervision  to  other  parts  of  the  indus- 
trial field.  Two  methods  have  presented  themselves 
as  government  policies  in  the  treatment  of  pubhc  serv- 
ice corporations — regulation  or  government  owner- 
ship. In  the  remainder  of  the  industrial  field,  a  wider 
and  less  definite  choice  is  presented.  Here  monopoly 
is  not  generally  recognized  as  necessary  or  as  even  ad- 
visable. Competition  is  still  thought  by  most  people 
to  be  something  to  be  preserved  and  guarded  by  the 
community.  The  Government  has  not  entered  into 
this  part  of  the  industrial  field  in  so  tangible  and  di- 
rect a  manner  as  has  been  the  case  with  j)ul)Iic  utili- 
ties. Substitutes  can  often  be  found  for  the  products 
of  most  industries,  so  that  the  ])ublic  is  not  so  pecu- 
liarly dependent  upon  them  as  n|)()n  electric  light,  gas, 
water  and  railway  service.  i\gain,  these  other  in- 
dustries are  not  generally  recognized  as  public  serv- 
ants. 

Many  arguments  could  be  advanced  for  a  policy  of 

107 


198        BUSINESS  AND  THE  GOVERNMENT 

legalized  combinations  and  trusts,  even  with  monopoly 
conditions  present,  under  a  system  of  regulation,  in- 
cluding such  matters  as  prices,  securities  and  public- 
ity of  accounts ;  and  such  a  policy  has  been  advocated 
by  many  people.  But  the  idea  of  govermnent  owner- 
ship in  this  modern  field  is  not  so  far  advanced  as  in 
the  case  of  public  utilities,  where  it  has  taken  a  strong 
hold.  The  public,  both  in  Europe  and  this  country, 
is  still  groping  in  its  efforts  to  find  a  satisfactory 
method  of  dealing  with  other  industries. 

2.  Definition  of  trusts  and  combinations. — Out- 
standing in  this  general  industrial  field  are  the  great 
combinations.  Instinctively  the  mind  conjures  up  the 
whiskey,  the  malting,  the  print  paper,  the  steel,  the 
harvester,  the  sugar  combination  and  a  host  of  others. 
Their  mere  recital  is  evidence  of  the  hazy  definition 
given  to  the  words  "trust"  or  "combination."  In  gen- 
eral, we  mean  by  such  terms  any  large  industrial  com- 
bination, whether  it  be  a  capitalistic  monopoly  or  an 
actual  competitive  corporation,  whether  it  completely 
controls  an  industry,  or  is  only  the  strongest  company 
in  any  particular  line,  as  is  the  United  States  Steel 
Corporation. 

The  word  "trust"  is  applied  by  the  public  to  big 
business.  Trusts  and  combinations  are  here  taken 
to  mean  manufacturing  corporations  with  such  great 
capital  and  power  that  they  are  at  least  thought  by 
the  public  to  have  become  a  menace  to  their  welfare, 
whether  or  not  they  have  monopoly  power. 

3.  Why  government  interferes. — There  are  several 


TRUSTS  AND  COMBINATIONS  199 

reasons  why  the  American  governments  have  seen  fit 
to  regulate  or  to  prohibit  trusts  and  combinations. 
As  Professor  R.  T.  Ely  of  Wisconsin  sums  the  matter 
up,  the  public's  apprehensions  are  due  to: 

The  fear  of  monopoly  power 

The  fear  of  industrial  concentration 

The  fear  of  wealth  concentration. 

All  these  fears  are  closely  connected  in  the  popular 
mind.  There  is  a  widespread  feeling  that  accumula- 
tion of  wealth  in  the  hands  of  a  few,  together  with 
the  enormous  ramifications  of  corporate  organiza- 
tions, and  the  ease  with  which  combinations  are  now- 
a-days  effected  are  used  to  oppress  individuals  and  to 
injure  the  public  generally.  It  has  been  a  favorite 
line  of  argument  on  the  part  of  the  United  States 
government  prosecutors,  to  hold  to  the  assumj)tion 
that  any  organization  controlling  a  large  percentage 
of  the  total  output  of  the  country  in  its  Held  is  a 
monopoly. 

This  argument  was  used  in  the  Government  cases 
against  the  International  Harvester  Company  and 
the  United  States  Steel  Corporation.  Hut  it  is  l)y  no 
means  clear  that  monopoly  can  be  determined  by  tlic 
percentage  of  the  total  output.  The  Steel  Corpora- 
tion has  had  competition  during  the  wliole  of  its  bis- 
tory  and  its  percentage  of*  tlic  total  output  bas  steadily 
declined.  The  International  Harvester  Company 
controlled  some  85  per  cent  of  tbe  total  output  of  tlie 
country  in  one  or  two  lines  of  manufacture;  but  some 


200        BUSINESS  AND  THE  GOVERNMENT 

of  the  Harvester  Company's  competitors,  when  put 
on  the  stand  and  asked  if  they  felt  the  Harvester 
Company's  competition  to  be  unfair  competition,  em- 
phatically answered  "No."  When  asked  if  its  com- 
petition was  real  competition  they  said  it  certainly 
was,  but  that  they  were  increasing  their  output  in 
spite  of  it.  These  competitors  did  not  believe  that  the 
Harvester  Company  could  put  up  its  prices  materially 
as  long  as  they  maintained  their  own  prices,  and  there 
was  no  agreement  among  the  manufacturers  as  to 
prices.  Monopoly  cannot  be  determined  in  this  way. 
Nevertheless  there  has  been  a  widespread  general  fear 
of  these  trusts  and  combinations  and  the  government 
has  felt  it  necessary  to  take  decided  action  against 
them.  Before  taking  up  in  detail  the  policy  of  our 
own  government  some  light  may  be  found  in  the  prac- 
tices followed  in  Germany,  England  and  Canada. 

4.  Policies  followed  by  Germany. — In  Germany  no 
prohibitory  legislation  is  placed  on  trusts  or  combina- 
tions. The  Government  itself  is  in  some  cases  part 
and  parcel  of  such  organizations.  Under  this  policy 
a  remarkable  development  in  trade  combinations  has 
taken  place,  the  old  combinations  being  continually 
extended  and  new  ones  constantly  formed.  The  Ger- 
man "Kartell"  is  usually  in  the  form  of  an  agreement 
regarding  output  and  sales  with  severe  penalties  for 
their  violation.  Agreements  often  cover  practically 
an  entire  industry  and  are  enforced  by  the  courts.  In 
this  country,  the  courts  would  hold  them  illegal  and 
would  not  enforce  them.     The  German  Government 


TRUSTS  AND  COMBINATIONS  201 

has  believed  that  good  economic  results  come  from 
such  organizations  and  except  in  specific  cases  of 
wrong  doing,  contrary  to  the  public  welfare,  has  not 
attempted  to  prevent  them.  Indeed  it  directly  en- 
couraged them,  especially,  perhaps,  when  the  product 
successfully  entered  the  export  field.  This,  of  course, 
is  a  marked  contrast  to  the  American  policy. 

5.  Policy  followed  hy  England. — England  also  fol- 
lows a  liberal  pohcy,  making  lier  distinction  on  the 
basis  of  reasonable  and  unreasonable  combination. 
In  the  earlier  days,  under  the  Houses  of  Tudor  and 
Stuart,  there  were  many  monopolies  granted  by  the 
kings,  such  as  the  monopoly  of  being  the  only  seller  of 
certain  lines  of  products.  Later  under  the  Monopoly 
Act  complete  monopoly  or  general  restraint  of  trade 
was  forbidden,  but  under  the  English  law  from  the 
earliest  days  even  to  the  present  time,  there  have 
been  certain  forms  of  legal  monopoly.  On  the  re- 
straint of  trade  the  line  of  decision  is  most  clearly 
marked.  The  English  courts  have  held  that  a  par- 
tial restraint  of  trade  is  not  illegal  unless  contrary 
to  the  public  interest.  In  other  words,  com!)inati()ns 
which  do  not  use  methods  that  are  unreasonable  or 
harmful  are  not  declared  invalid  under  English  law. 
Business  in  English  industry  is  not  hampered  by  a 
narrow  governmental  policy;  it  operates  under  spe- 
cific laws  against  wrong  doing,  and  rcasorjublc  njcth- 
ods  and  intention  are  provided  for. 

6.  Canadian  policy. — Canada,  with  economic  con- 
ditions similar  to  our  own,  began  its  policy  toward 


202        BUSINESS  AND  THE  GOVERNMENT 

trusts  and  combinations  in  a  similar  manner,  namely 
prohibition.  The  Dominion  Criminal  Code  contains 
provisions  against  combinations  and  monopoly. 
Later,  however,  this  purely  negative  policy  was 
greatly  modified,  altho  not  entirely  superseded,  by  the 
passage  of  the  Combines  Investigation  Act  of  1910. 
Under  this  law  provision  is  made  for  a  board  of  in- 
vestigation composed  of  three  persons,  one  represent- 
ing the  complaining  party,  one  the  defendant  and  the 
other  a  judge  of  the  Court  of  Record.  The  board 
may  be  secured  by  any  six  persons  who  declare  that  a 
combination  exists  in  respect  to  any  article  of  trade  or 
commerce,  and  that  prices  are  thereby  enhanced  or 
competition  restricted  to  their  detriment,  either  as  con- 
sumers or  producers  and  who  can  present  reasonable 
ground  for  such  declaration. 

7.  Methods  of  regulation  wider  the  Canadian  Act. 
— Several  methods  of  regulation  are  provided  in  case 
the  charges  are  proved.  The  customs  tariff  may  be 
reduced  or  taken  off  altogether  on  certain  articles  con- 
trolled by  the  combination,  so  as  to  bring  about  for- 
eign competition.  Patents  used  unfairly  may  be  re- 
voked. If  the  combination  or  person  continues  in  a 
course  against  which  the  board  has  declared  or  does 
not  carry  out  the  recommendations  made,  such  per- 
son or  organization  is  guilty  of  an  indictable  offence 
and  subject  to  a  fine  not  exceeding  one  thousand  dol- 
lars a  day  and  costs.  Where  licenses  under  the 
Canadian  Inland  Revenue  Act  are  used  unfairly, 
their  cancellation  is  possible  and  probable.     Subsidies 


TRUSTS  AND  COMBINATIONS  203 

granted  by  Parliament  to  shipping  or  transportation 
companies  may  be  revoked. 

8.  Considerations  in  the  Canadian  policy. — Accord- 
ing to  V/.  L.  jNIackenzie-King,  former  Minister  of 
Labor  of  Canada/  the  Dominion  shapes  its  policy  in 
the  light  of  three  possible  considerations: 

First.  That  it  is  the  possible  inimical  effects  of 
combination  and  not  combination  as  such  that  is  to 
be  aimed  at  in  legislation.  This  is  a  frank  admission 
that  combination  is  not  necessarily  a  bad  thing,  but 
that  it  is  an  inevitable  and  necessary  development. 

Second.  Canada  believes  that  it  is  the  duty  of  the 
government  to  see  that  the  interests  of  the  many  who 
compose  a  state  are  not  sacrificed  to  the  interests  of 
the  few  whom  favors  and  opportunities  have  helped 
to  create. 

Third.  That  there  are  certain  evils  in  combinations 
in  which  publicity  is  more  effective  than  penalty,  and 
that  no  single  remedy  may  be  formed  for  all  the  pos- 
sible abuses  that  may  arise. 

9.  Beginnings  of  American  anti-trust  movement. — 
In  the  United  States  from  the  end  of  the  C^ivil  War 
down  till  the  late  '80s,  poj)ular  faitli  in  competition 
unhampered  by  government  regulation  was  the  rule. 
In  the  '80s,  many  large  organizations  were  formed. 
Many  used  reprehensible  methods  to  stifle  competition 
and  took  a  tioist  form  of  organization  which,  as  it 
seemed  to   permit  combination   of  ahnost   uiilirnitcd 

iThe  Canadian  Combines  Investigation   Act,  Annals  AmiTicnn   Arul- 
emy,  July,  1012,  Page  149. 


204.        BUSINESS  AND  THE  GOVERNMENT 

size  and  power,  aroused  great  apprehension  on  the 
part  of  the  ^^ublic.  Legislatures  became  agitated,  so 
that  by  1890,  25  or  30  of  our  states  had  passed  laws 
forbidding  monopoly  or  combination  in  restraint  of 
trade.  Ordinarily,  the  law  forbade  all  kinds  of  com- 
binations in  an  attempt  to  keep  business  in  the  old 
competitive  form.  Had  the  earlier  laws  been  strictly 
interpreted,  it  would  not  have  been  possible  to  do  any 
business  at  all  except  as  private  individuals. 

The  effect  of  these  laws,  however,  was  not  great. 
They  were  recognized  as  having  been  hastily  passed 
in  response  to  popular  outcry.  In  cases  where  the 
legislatures  denounced  them,  possibly  under  political 
pressure,  business  men  did  not.  In  consequence,  busi- 
ness was  generally  carried  on  as  before  and  combina- 
tions were  seldom  attacked.  On  the  other  hand,  in 
some  of  the  states,  notably  in  Missouri  and  Texas,  an 
effort  was  made  to  enforce  these  laws  rigidly.  Suits 
were  instituted  and  the  acts  were  upheld  by  the  courts. 
The  consequence  was  that  when  it  became  apparent 
that  it  would  be  dangerous  to  do  business  on  a  large 
scale,  there  was  either  an  evasion  of  the  law  or  else 
the  companies  withdrew  from  the  state.  The  Inter- 
national Harvester  Company,  for  instance,  announced 
that  it  would  not  violate  the  law  and  that  if  it  were 
going  to  be  attacked  as  a  law  breaker  it  would  with- 
draw ;  and  it  did  withdraw  from  Texas.  Texas  after 
an  experience  of  some  years  passed  a  bill  practically 
inviting  back  to  the  state  the  corporations  convicted 
under  the  anti-trust  laws. 


TRUSTS  AND  COMBINATIONS  205 

10.  Sherman  Anti-Trust  Act. — The  Sherman 
Anti-Trust  Act  was  drawn  in  much  the  same  spirit  as 
some  of  these  state  laws.  Indeed,  Senator  Sherman 
said  that  its  purpose  was  to  enable  the  Federal  courts 
to  "cooperate  with  the  state  courts  in  checking-  and 
controlling  the  most  dangerous  combinations  that  now 
threaten  the  business  property  and  trade  of  the  people 
of  the  United  States."  Altho  the  law  was  passed  in 
1890,  until  1903  it  was  a  negligible  factor,  apathetic- 
ally enforced.  At  that  time,  however,  perhaps  as 
a  result  of  a  number  of  investigations  alleging  politi- 
cal corruption  and  unfair  practices  by  combinations, 
public  attention  was  focused  upon  the  combinations, 
and  a  general  wave  of  prosecutions  followed  under 
the  Interstate  Commerce  Commission  Act  and  the 
Sherman  Anti-Trust  Law. 

11.  "Monopohj"  in  the  Sherman  Act. — Under  the 
Sherman  law,  "Every  contract  or  combination  in  the 
form  of  a  trust  or  otherwise,  or  conspiracy  in  restraint 
of  trade  or  commerce  among  the  several  states  or  with 
foreign  nations"  is  illegal,  and  "everj^  person  who  shall 
monopolize  any  part  of  the  trade  or  commerce  among 
the  several  states  or  with  foreign  nations  sliall  be 
deemed  guilty  of  a  misdemeanor."  If  an  organiza- 
tion increased  its  business  five  or  ten  times  simply  thru 
using  the  most  efficient  means  of  production,  it  might 
very  easily  be  called  a  monopoly,  altho  the  organiza- 
tion may  have  had  no  thought  of  doing  anything  out 
of  the  way. 

12.  Reasonable    and    unreasonable    restraint    of 

XXIV— 15 


206        BUSINESS  AND  THE  GOVERNMENT 

trade. — In  the  first  important  cases  the  lawyers 
arffued  that  altho  the  word  "reasonable"  was  not  in  the 
act,  our  law  was  a  development  of  the  common  law  and 
it  would  be  the  natural  thing  to  suppose  that  this  Act 
applied  only  to  contracts  in  unreasonable  restraint  of 
trade  and  contrary  to  the  public  interest.  The  first 
important  decisions  that  followed  (especially  those  in 
the  Trans-Missouri  Freight  Association,  in  the  Joint 
Traffic  Association,  and  in  the  Addyston  Pipe  and 
Steel  Co.  cases)  rather  disabused  business  men  of  this 
feeling.  The  courts  held  that  it  was  not  the  duty  of 
the  court  to  read  words  into  a  law,  that  Congress  had 
said  that  every  contract  along  this  line,  even  among 
railroads,  was  illegal,  and  that  they  would  not  attempt 
to  take  up  the  question  whether  or  not  a  contract  was 
reasonable. 

13.  Standard  Oil  and  Tobacco  decisions. — Then, 
in  1911  came  the  decisions  of  the  Standard  Oil  and  the 
Tobacco  cases  when  a  step  was  taken  by  the  court  that 
covered  the  chief  point  that  had  been  advocated  dur- 
ing the  preceding  ten  or  fifteen  years  by  the  people 
who  were  trying  to  get  the  Sherman  Act  amended. 
The  court  in  these  decisions  said  in  effect  that  there 
must  be  adjustment  of  the  meaning  of  the  law  to  busi- 
ness conditions  and  that  if  Congress  did  not  make  that 
adjustment,  it  was  a  matter  for  serious  consideration 
by  the  Court ;  and  that  it  would  construe  the  law  in  the 
light  of  reason.  These  two  decisions  marked  real 
turning  points  in  the  American  policy  toward  trusts 
and  combinations.     Reasonableness   was   to  be   fol- 


TRUSTS  AND  COMBINATIONS  20T 

lowed  in  deciding  upon  the  actions  of  those  forming 
trusts  and  combinations. 

14.  United  States  Steel  Corporation  decision  of 
1915. — Court  decisions  of  the  last  few  years  indicate 
a  still  more  liberal  and  constructive  point  of  view 
toward  honorably  conducted  corporations  and  combi- 
nations. From  the  viewpoint  of  the  business  man, 
the  decision  of  the  United  States  District  Court  foi* 
New  Jersey,  in  the  case  of  the  United  States  Govern- 
ment against  the  United  States  Steel  Corporation, 
handed  down  June  3,  1915,  was  one  of  the  most  mo- 
mentous for  many  years.  Later  the  decision  of  the 
Supreme  Court,  JNIarch  1, 1920,  upholding  the  decision 
of  the  lower  court  is  even  more  detailed  an  epoch  in 
our  business  history.  For  manj'^  years  it  has  been  well 
understood  by  those  who  have  followed  its  methods 
of  business,  that  the  United  States  Steel  Corporation 
has  been  attempting  to  manufacture  good  goods  at 
the  lowest  cost,  and  to  deal  fairly  with  its  competitors, 
with  the  consumers  of  its  products  and  with  its  em- 
ployes— altho,  of  course,  there  has  been  a  decided  dif- 
ference of  opinion  between  the  officers  of  the  corj)ora- 
tion  and  of  the  labor  unions  as  to  the  best  methods  to 
follow.  The  Supreme  Court  not  only  recognized 
these  facts,  but,  what  is  of  vital  importance,  it  has  offi- 
cially declared  that  when  business  is  carried  on  with 
these  purposes  and  by  these  methods,  a  corporation  is 
not  acting  contrary  to  the  Sherman  law,  however  great 
its  size. 

In  conclusion  the  court  said  "we  are  unable  to  see 


208         BUSINESS  AND  THE  GOVERNMENT 

that  the  pubHc  interest  will  be  served  by  yielding  to 
the  contention  of  the  Government  respecting  the  dis- 
solution of  the  company  or  the  separation  from  it  of 
some  of  its  subsidiaries;  and  we  do  see  in  a  contrary 
conclusion  a  risk  of  injuiy  to  the  public  interest,  in- 
cluding a  material  disturbance  of,  and,  it  may  be  seri- 
ous detriment  to,  the  foreign  trade.  And  in  submis- 
sion to  the  policy  of  the  law  and  its  fortifying  prohibi- 
tions the  public  interest  is  of  paramount  regard." 

1.5.  Inteiniational  Harvester  Company  decision  of 
1014. — It  is  an  interesting  fact  and  also  a  striking 
commentary  upon  the  legal  system  of  the  United 
States  that  the  District  Court  of  Minnesota  on  Au- 
gust 12,  1914,  altho  recognizing  that  the  International 
Harvester  Company  had  been  carrying  on  its  busi- 
ness in  accordance  w^ith  the  same  methods  and  with 
substantially  the  same  results  as  those  just  mentioned, 
nevertheless  decided  that  that  company  was  a  "trust" 
existing  in  violation  of  the  Sherman  Law.  To  be 
sure,  the  percentage  of  the  entire  output  of  the  coun- 
\Ty  in  certain  lines  produced  by  the  Harvester  Com- 
pany is  probably  larger  than  in  the  case  of  the  Steel 
Corporation  and,  at  the  time  of  its  organization,  some 
of  its  constituent  members  were  competing  in  certain 
products.  Nevertheless  the  methods  of  its  capitaliza- 
tion left  less  to  be  criticized  than  that  of  the  Steel  Cor- 
poration. The  purposes  of  doing  business  and  the 
methods  have  apparently  been  largely  the  same.  In 
this  case  an  agreement  was  reached  between  the 
United  States  Department  of  Justice  and  the  com- 


TRUSTS  AND  COMBINATIONS  209 

pany  bj'-  which  the  corporation  was  reorganized  to 
meet  the  contention  of  the  Government.  In  conse- 
quence the  suit  was  dropped  without  a  decision. 

16.  Sound  business  principles  recognized. — Judge 
Elbert  H.  Gary,  more  than  fifteen  years  ago,  before 
the  organization  of  the  United  States  Steel  Corpora- 
tion, in  his  testimony  on  October  19,  1899,  before  the 
United  States  Industrial  Commission,  outlined  the 
general  line  of  business  policy  that  he  thought  great 
corporations  should  follow  in  order  that  the  best  in- 
terests of  the  public  as  well  as  of  the  companies  should 
be  served.  In  his  judgment  there  was  no  possible 
way  by  which  any  company  could  keep  down  competi- 
tion, even  if  it  so  desired.  Speaking  of  the  Federal 
Steel  Company,  of  which  lie  was  then  President,  he 
stated  specifically:  "We  have  endeavored  not  to  run 
counter  and  not  to  be  antagonistic  to  the  spirit  of 
any  law  of  any  state;  we  are  not  attempting  to  con- 
trol prices;  we  are  not  seeking  a  monopoly."  And 
again,  recognizing  certain  abuses  that  were  found  in 
some  cases  and  the  possible  remedies  for  such  evils, 
he  said:  "These  great  aggregations  of  capital  un- 
doubtedly are  for  the  benefit  of  us  all,  certainly  for 
the  benefit  of  this  countiy,  and  certainly  for  the  benefit 
of  the  employes  generally.  But  the  aggregation  of 
capital  may  be  used  in  such  a  way  as  to  do  a  great 
deal  of  harm.  ...  I  think  the  best  remedy  is  plenty 
of  light  on  the  subject,  plenty  of  discussion,  a  thoro 
understanding."  On  May  28,  191. "i,  testifying  in  a 
later  suit,  Judge  Gary  expressed  like  o])i?ii()ns,  assert- 


210        BUSINESS  AND  THE  GOVERNMENT 

iiig  that  the  policy  of  the  United  States  Steel  Cor- 
poration has  been  consistent  from  the  beginning, 

17.  Affirmative  decision  by  United  States  Supreme 
Court  recognizes  honest  business  methods. — Altho 
there  may  have  been  here  and  there  exceptions,  the 
two  great  corporations  mentioned,  judging  from  the 
facts  that  have  been  brought  out  by  the  scores  of 
witnesses,  have  conducted  their  affairs  in  accordance 
with  the  principles  of  enlightened  business.  Since 
the  decisions  in  the  Standard  Oil  and  Tobacco  Com- 
panies, the  decisions  of  the  Supreme  Court  have  in- 
dicated that  it  believes  in  good  business  methods 
and  will  interpret  the  Sherman  Law  as  being  not 
antagonistic  to  corporations  that  follow  sound  busi- 
ness practice ;  but  in  the  individual  cases  before  it,  the 
decisions  have  generally  been  adverse  to  the  corpora- 
tions— the  Court  holding  that  their  business  practices 
have  been  unsound  and  in  many  cases  oppressive. 
There  has  been  needed  an  affirmative  decision  that 
should  state  positively  that  any  corporation  following 
sound,  honest  business  j^rinciples  consistently,  no  mat- 
ter what  its  size,  would  not  fall  under  the  ban  of  the 
Sherman  Law. 

18.  The  real  question  involved. — The  decision  of 
the  District  Court  in  the  Steel  case  takes  definitely 
and  positively  that  position.  The  judges,  referring 
to  the  Standard  Oil  and  Tobacco  cases,  say:  "These 
cases  may  be  taken  to  have  established  that  only  such 
combinations  are  within  the  Act  as  by  reason  of  intent 
or  the  inherent  nature  of  the  contemplated  acts  preju- 


TRUSTS  AND  COMBINATIONS  211 

dice  the  public  interests  by  unduly  restricting  com- 
petition or  unduly  obstructing  the  course  of  trade." 
Again,  "It  will  be  seen  that  the  steel  and  iron  busi- 
ness of  this  country  is  not  being  and,  indeed,  can- 
not be  monopolized,  that  the  real  test  of  monopoly 
is  not  the  size  of  that  which  is  acquired,  but  the  trade 
power  of  that  which  is  not  acquired."  And  further, 
"We  dismiss  once  and  for  all  the  question  of  the  mere 
volume  or  bigness  of  business.  The  question  before 
us  is  not  how  much  business  was  done,  or  how  large 
the  company  that  did  it,  the  vital  question  is:  'How 
was  the  business,  whether  big  or  little,  done-  Was 
it,  in  the  test  of  the  Supreme  Court,  done  without 
prejudicing  the  public  interests  by  unduly  restricting 
or  unduly  obstructing  trade?'  The  question  is  one  of 
undue  restriction  or  obstruction,  and  not  one  of  un- 
due volume  of  trade."  Fortunately  for  the  develop- 
ment of  honest  business  the  Supreme  Court,  in  1920, 
fully  upheld  their  decision. 

19.  Public  interest  as  shown  by  facts. — These  state- 
ments put  tlie  case  squarely  on  the  issues,  not  of 
verbal  quibbles,  or  of  legal  technicalities,  but  of  the 
public  interest  as  shown  by  the  actual  facts.  That 
position  is  the  one  that  every  business  man  wishes  the 
Court  to  take.  The  decision  of  the  Su])reme  Court 
confirming  this  view  really  did  more  to  relieve  business 
anxiety  and  put  the  country  on  the  road  to  permanent 
prosperity  than  any  possible  legislation.  Business 
men  have  hesitated  to  invest  capital,  because  they 
could  not  judge  how  the  Court  would  interpret  the 


212         BUSINESS  AND  THE  GOVERNMENT 

law.  They  had  often  followed  strictly  their  con- 
sciences, knowing  the  facts,  knowing  that  they  were 
haiTning  no  one,  and  yet  at  times  fearing  that  they 
might  be  breaking  the  law.  Now  they  have  a  real 
basis  for  judging  the  law  as  applied  to  their  own 
business. 

20.  Attempts  to  clarify  the  Sherman  Anti-Trust 
Law. — In  order  to  vitalize  and  clarify  the  Sherman 
Law  so  as  to  meet  the  wide  dissatisfaction  on  the  part 
of  the  general  public,  who  felt  that  the  dissolution  of 
great  trusts  accomplished  nothing  of  practical  value, 
and  on  the  part  of  the  business  interests,  who 
felt  that  the  uncertainties  of  meaning  of  the  Sherman 
Law  subjected  business  to  continual  harassment  with 
no  compensating  gain  to  the  general  public.  Congress 
during  the  Wilson  administration  passed  the  Federal 
Trade  Commission  Act  and  the  Clayton  Anti-Trust 
Law.  In  these  acts  Congress  attempted  to  provide 
an  administrative  body  to  deal  with  these  questions 
on  their  economic  merits  and  to  define  acts  so  as  to 
make  the  provisions  of  our  anti-trust  law  specific  and 
definite. 

21.  Powers  of  the  Federal  Trade  Commission. — 
The  Federal  Trade  Commission  Act  provides  for  a 
commission  of  five  members,  not  more  than  three  of 
whom  shall  be  members  of  the  same  political  party. 
The  Commission  has  the  following  powers: 

(1)  To  effect  the  readjustment  of  business  and  to 
prescribe  appropriate  decrees  in  equity  suits. 

(2)  To  require  reports  and  classify  corporations. 


TRUSTS  AND  COMBINATIONS  213 

(3)  To  investigate. 

(4)  To  prevent  unfair  competition. 

In  addition,  by  the  terms  of  the  Clayton  Act,  the 
Commission  possesses: 

(5)  Power  to  prevent  price  discrimination,  exclu- 
sive and  "tieing"  arrangements,  holding  corporations 
and  interlocking  directorates. 

22.  Readjustment  of  business  and  prescribing  of 
appropriate  decree  in  equity  suits. — The  Federal 
Trade  Commission  may  upon  the  application  of  the 
Attorney  General  "investigate  and  make  recommen- 
dations for  the  readjustment  of  the  business  of  any 
corporation  alleged  to  be  violating  the  anti-trust  acts, 
in  order  that  the  corporation  may  thereafter  maintain 
its  organization,  management  and  conduct  of  busi- 
ness in  accordance  with  law."  In  a  suit  in  equity 
the  Court  may  refer  said  suit  to  the  Commission, 
as  a  master  in  chancery,  "to  ascertain  and  report  an 
appropriate  form  of  decree  therein,"  altho  it  is  not 
bound  by  the  report.  Altho  it  is  discretionary  upon 
the  part  of  the  Attorney  General  and  the  courts  to 
use  the  Commission,  it  is  presumable  that  tliis  will 
be  done  and  that  the  decisions  of  the  Commission  will 
have  much  directing  force.  Much,  of  course,  depends 
upon  the  composition  of  the  Commission. 

23.  Power  of  investigation. — Aside  from  the  power 
of  investigation  which  is  conferred  upon  tlie  Comniis- 
sion  as  incidental  to  the  functions  just  discussed,  that 
body  is  given  several  other  inquisitorial  powers.  It 
has  the  power  to  investigate  tlie  organization  of  any 


214.         BUSINESS  AND  THE  GOVERNMENT 

corporation  engaged  in  commerce,  excepting  banks 
and  common  carriers.  It  may  also  "upon  the  direc- 
tions of  the  President  or  either  House  of  Congress, 
investigate  and  report  the  facts  relating  to  any  al- 
leged violation  of  the  anti-trust  acts  by  any  corpora- 
tion." Also,  it  may,  upon  its  own  initiative,  make 
investigation  of  the  manner  in  which  any  final  couK 
decree  entered  against  any  corporation  has  been  or  is 
being  carried  out;  and  may  "investigate,  from  time  to 
time,  trade  conditions  in  the  foreign  countries,  where 
associations,  combinations,  or  practices  of  manufac- 
turers, merchants  or  traders,  or  other  conditions,  may 
effect  the  foreign  trade  of  the  United  States."  It 
may  also  have  access  to  the  documentary  evidence  of 
any  corporation  being  investigated  and  has  power  to 
require  by  subpena  the  attendance  and  testimony  of 
witnesses. 

24.  Power  to  require  reports  and  classify  corpora- 
tions.— The  Commission  may  "require  corporations 
engaged  in  commerce,  excepting  banks  and  common 
carriers,  to  file  with  the  Commission,  in  such  forms  as 
the  Commission  may  prescribe,  annual  or  special  re- 
ports, or  answers  in  writing  to  specific  questions."  It 
may  also  classify  corporations  and  prescribe  a  uni- 
form system  of  accounting.  This  may  be  of  far- 
reaching  importance  in  determining  the  relative  efl^- 
ciency  of  various  kinds  of  organizations. 

25.  Power  to  prevent  unfair  competition. — The 
Trade  Commission  Act  provides  "that  unfair  methods 
of  competition  in  commerce  are  hereby  declared  un- 


TRUSTS  AND  COMBINATIONS  215 

lawful,"  while  under  the  terms  of  the  Clayton  Act, 
jurisdiction  to  prevent  various  specific  acts  has  been 
vested  in  the  Commission.  These  specific  acts  cover 
discrimination  in  prices  among  purchasers,  the  pro- 
hibition of  "tieing"  and  exclusive  selling  arrange- 
ments, the  buj^ing  by  one  corporation  of  the  stock  of 
other  corporations  where  such  acts  may  substantially 
lessen  competition  or  tend  to  create  a  monopoly. 
The  Clayton  Act  also  provides  "that  no  person  shall 
be  a  director  at  the  same  time  in  any  two  or  more 
corporations  engaged  in  interstate  commerce  which 
have  a  capital,  surplus  and  individual  profits  aggre- 
gating more  than  1,000,000  dollars."  This  provision 
applies  in  cases  where  such  corporations  have  been 
competitors,  so  that  the  elimination  of  competition  be- 
tween them  would  be  a  violation  of  any  of  the  pro- 
visions of  the  anti-trust  laws. 

26.  Advantages  and  disadvantages  of  these  new 
hnvs. — One  may  question  whether  any  very  material 
alteration  from  the  situation  under  the  Sherman  Act 
has  been  secured  by  the  new  legislation  so  far  as  it 
prohibits  unfair  competition,  price  discriminations, 
exclusive  arrangements  and  holding  corporations. 
The  value  of  prohibiting  interlocking  directorates  as 
enacted  in  the  Clayton  Law  is  verj^  much  to  be  ques- 
tioned. "Tieing"  arrangements  were  specifically  up- 
lield  by  the  decision  of  the  United  States  Supreme 
Court  in  Henry  vs.  Dick.  The  Sherman  Act,  there- 
fore, could  scarcely  have  })een  made  applicable  to  any 
such  arrangement  in  view  of  that  decision.     The  Clay- 


216         BUSINESS  AND  THE  GOVERNMENT 

ton  Law,  therefore,  here  prohibits  an  act  previously 
declared  lawful  by  the  United  States  Supreme  Court. 
The  value  of  this  prohibition  in  the  Clayton  Law 
may  also  be  greatly  questioned.  The  new  laws  pro- 
vide for  a  body  of  men  with  wide  investigatory  pow- 
ers who  are  to  devote  a  considerable  amount  of  time 
to  the  study  of  the  question.  These  five  men  ought, 
therefore,  to  become  specialists.  The  report  of  the 
Commission  on  combinations  in  foreign  trade  indi- 
cates that  the  Trade  Commission  will  be  a  clarify- 
ing factor  in  presenting  the  economic  side  of  the  cor- 
poration question  to  Congress  and  the  public. 

It  seems  not  improbable  that  these  laws  mark  a 
turning  point  in  our  attitude  toward  great  corpora- 
tions; that  criminal  penalties  are  no  longer  to  be  re- 
lied upon  for  enforcement,  but  that  enforcement  shall 
be  handled  civilly,  thru  either  the  courts  or  the  Trade 
Commission.  This  points  toward  the  ultimate  result 
that  the  main  control  of  great  corporations  will  be 
vested  in  an  administrative  board  or  body. 

27.  Increasing  power  of  Federal  government. — 
The  formation  of  the  Federal  Trade  Commission,  the 
enactment  of  the  Clayton  Anti-Trust  Act,  and  the 
more  recent  passage  of  the  Child  Labor  Bill  aimed 
at  the  production  end  of  business  by  preventing  man- 
ufacturers who  do  not  come  up  to  certain  standards  in 
the  emplojTnent  of  labor  from  engaging  in  interstate 
commerce,  all  point  toward  an  increasing  power  of 
the  central  government  even  in  time  of  peace.  The 
Federal  government  exercises  its  power  over  business 


TRUSTS  AND  COMBINATIONS  217 

thru  the  provisions  in  the  constitution,  giving  it  the 
right  to  regulate  commerce  among  the  states  and  with 
foreign  nations,  the  power  of  taxation  and  the  power 
over  the  postal  service. 

28.  Distinction  between  commerce  and  manufac- 
turing.— As  trusts  or  combinations  are  generally 
manufacturing  concerns,  they  are,  so  far  as  produc- 
tion is  concerned,  subject  to  state  regulations,  not 
Federal.  As  organizations  engaging  in  interstate 
commerce  they  are  subject  to  Federal  supervision,  not 
state.  This  distinction  makes  efficient  control  diffi- 
cult and  chaotic,  leaving  the  business  man  between 
Federal  supervision  of  interstate  commerce  and  the 
intricacies  of  legislation  enacted  in  states.  The  new 
Child  Labor  Act  is  an  attempt  to  make  the  commerce 
clause  in  the  constitution  cover  one  factor  in  the  manu- 
facturing end  of  the  business. 

29.  Federal  incorporation  or  license  for  interstate 
commerce. — In  consequence  of  this  confusion,  many 
business  men  favor  a  voluntary  Federal  incorporation 
act  or  a  Federal  license  for  interstate  commerce.  A 
Committee  of  the  National  Civic  Federation,  made 
up  of  lawyers,  great  business  men  and  labor  leaders, 
a  few  years  ago  drafted  a  Federal  license  bill  which  if 
followed  would  go  a  long  way  toward  meeting  tliese 
difficulties.  The  l)ill  included  the  licensing  by  a  Fed- 
eral commission  of  corporations  doing  interstate  com- 
merce under  provisions  which  would  give  well-inten- 
tioned organizations  the  opportunity  to  s(juare  tlicm- 
selves  with  the  law.     Unless  the  preceding  decisions 


218         BUSINESS  AND  THE  GOVERNMENT 

of  the  Supreme  Court  and  the  work  of  the  Federal 
Trade  Conunission  prove  favorable  to  the  country, 
the  passage  of  a  Federal  licensing  act  and  an  exten- 
sion of  the  control  of  the  Federal  government  over 
business  in  general  thru  an  administrative  body  such 
as  the  Federal  Trade  Commission  seems  probable. 

30.  Present  situation. — History  was  made  quickly 
in  times  of  war  and  there  is  evidence  that  much  of 
the  old  prejudice  against  combinations  has  broken 
down.  The  needs  of  war  emphasize  the  importance 
of  increased  and  coordinated  production.  That  this 
can  be  obtained  more  easily  thru  large  concerns  un- 
der a  unified  direction,  than  thru  countless  smaller 
ones  working  at  cross  purposes  is  almost  self  evident. 
Under  such  conditions  during  the  war  the  people 
and  the  government  were  more  indulgent  towards 
combinations. 

During  the  crisis  of  the  war  the  United  States 
Government  dropped  pending  suits  against  a  number 
of  the  largest  corporations  because  any  decision  re- 
quiring the  dissolution  of  those  companies  would  in- 
volve new  financing  on  so  large  a  scale  as  to  compete 
with  the  Government  for  funds.  jMoreover  the  exi- 
gencies of  war  proved  that  in  such  a  time  of  emergency 
the  superb  nation  wide  or  at  times  world  wide  power 
of  these  organizations  was  of  the  very  greatest  bene- 
fit. Had  these  organizations  not  been  in  existence 
it  would  have  been  impossible  to  feed  and  supply  our 
armies  with  anything  like  the  same  degree  of  efficiency. 
Their  operations,  of  necessity,  would  have  been  re- 


TRUSTS  AND  COMBINATIONS  219 

stricted,  so  that  it  is  scarcely  too  much  to  say  that 
the  formerly  hated  and  feared  trusts  proved  in  this 
emergency  of  ahiiost  indispensable  benefit. 

The  lesson  has  not  been  entirely  lost.  The  passage 
of  the  Webb  Bill  which  provides  for  combination  in 
export  trade,  and  the  Edge  Bill  which  makes  provi- 
sion for  financing  such  organizations  engaged  in  ex- 
porting so  as  to  secure  a  low  cost  of  production  to 
enable  them  to  compete  in  foreign  markets  make  it 
probable  that  a  radical  change  in  our  policy  toward 
combinations  will  from  this  time  on  be  noted.  It  is 
to  be  expected  that  while  the  Government  will  still  be 
on  guard  to  protect  tlie  interests  of  the  people  against 
abuses,  the  normal  l)eneficial  economic  effects  of  the 
large  organizations  will  be  recognized  and  the  com- 
panies allowed  to  continue  their  work  so  long  as  it  is 
carried  on  in  the  interests  of  the  public. 

REVIEW 

Why  would  regulation  of  a  manufacturing  concern  be  more 
difficult  than  that  of  a  public  service  corporation? 

What  four  policies  may  be  followed  by  the  government  in  deal- 
ing with  business? 

Why  is  monopoly  recognized  in  public  service  corporations  and 
not  in  corporations  in  general  business? 

Why  is  it  necessary  under  modern  economic  conditions  for  tlie 
Federal  government  to  assume  more  power  over  corporations? 

Can  monopoly  be  determined  by  percentage  of  output? 


CHAPTER  XI 

THE  POSTAL  SERVICE 

1.  Importance  of  the  postal  service. — Ex-president 
Wilson  at  the  annual  banquet  of  the  National  Asso- 
ciation of  Presidential  Postmasters,  in  July  1916,  de- 
clared that  in  every  country  the  post  office  is  the  "con- 
spicuous gauge  and  standard  of  what  the  government 
is  doing  for  the  people." 

From  the  viewpoint  of  government  management 
the  post  office  is  of  primary  interest,  as  it  is  the  best 
and  largest  example  of  government  monopoly  in  this 
and  in  most  other  countries.  The  distribution  of  in- 
formation and  goods  is  of  the  utmost  importance,  as 
upon  its  efficiency  and  progressiveness  depends  in 
large  part  our  modern,  complex,  rapid  business  life. 
From  the  very  nature  of  the  postal  business,  good  eco- 
nomic and  financial  results  should  be  secured.  If 
the  government  does  not  or  cannot  operate  the  post 
office  efficiently,  there  is  little  likelihood  of  its  suc- 
ceeding in  the  management  of  more  complicated  and^ 
less  routine-like  lines  of  industrial  activity.  Much 
of  the  government  expansion  of  business  management 
is  thru  the  enlargement  of  the  postal  department. 
The  parcel  post  is  a  recent  example  of  such  expan- 
sion.    In  many  other  countries  the  telegraph  and 

220 


THE  POSTAL  SERVICE  221 

telephones  are  also  run  by  the  post  office.  The  Post- 
master-General of  the  United  States  even  before  the 
war  proposed  to  take  over  the  telegraphs  and  the  long- 
distance telephones.  The  action  of  the  President  in 
taking  control  of  them  as  a  war  measure  and  placing 
them  for  administration  under  the  direction  of  the 
Postmaster-General  and  the  further  act  of  assuming 
control  of  the  cables  even  after  the  siffninff  of  the 
armistice,  Xov.  11,  1918,  placed  the  issue  squarely 
before  the  country.  The  results  were  not  encour- 
aging and  the  Department  was  subjected  to  much 
criticism.  The  post  office  for  many  reasons,  then, 
is  worthy  of  careful  study  as  a  guide  in  settling  the 
question  as  to  whether  further  expansion  in  govern- 
ment management  is  a  wise  policy. 

2.  Development  of  postal  service. — The  develop- 
ment of  the  postal  service  is  an  interesting  story.  The 
first  recorded  postal  service  consisted  of  a  regular 
system  of  sending  messengers  on  the  king's"  business 
in  the  days  of  Cyrus  the  Elder,  King  of  Persia. 
Among  the  ancient  Romans  it  was  common  to  have 
postal  routes,  as  it  was  later  in  France  under  Charle- 
magne. So  far  as  is  known  the  first  commercial  post, 
aside  from  government  messages,  was  established 
early  in  the  twelfth  century.  In  1516  there  was  es- 
tablished a  postal  system  for  the  Emperor  of  Ger- 
many and  the  position  of  postmaster  general  was  cre- 
ated. A  regidar  post  was  established  by  Henry  the 
Eighth  in  England — at  first  for  the  government  but 
later  for  the  people.     Under  James  I.  in  lOO.'J,  when 

XXIV — 16 


222         BUSINESS  AND  THE  GOVERNMENT 

there  was  a  beginning  of  a  monopoly  system,  James 
gave  to  a  private  interest  a  monopoly  of  hiring  out 
horses  to  travelers.  Soon  after  a  special  privilege 
was  given  in  conjunction  with  this  monopoly  for  col- 
lecting and  delivering  letters. 

A  regular  post  was  established  between  London 
and  Edinburgh  in  1535,  and  finally  the  business  be- 
came so  profitable  that  in  1650  there  was  a  special  offer 
made  of  five  thousand  pounds  a  year  for  the  privilege 
of  a  postal  monopoly.  A  penny  delivery  rate  was 
established  in  London  as  early  as  1680.  This  was 
at  first  a  private  affair,  but  afterward  was  incor- 
porated into  the  public  system.  Not  until  1840,  how- 
ever, under  Rowland  Hill,  was  the  principle  of  penny 
postage  for  all  England  established.  To  have  one 
uniform  charge  for  all  distances  was  a  great  advance, 
and  this  plan  of  universal  penny  postage  was  not  in- 
troduced into  England  until  after  long  discussion. 
It  was  an  innovation  which  it  was  thought  would  be 
extremely  expensive.  Hill  claimed,  however,  that  it 
would  pay  and  it  proved  to  be  a  great  success. 

The  first  regular  post  in  the  American  colonies 
was  established  in  1682  and  this  was  taken  over  in 
1710  by  Great  Britain.  The  Continental  Congress 
set  up  a  post  office  system,  Benjamin  Franklin  be- 
coming the  first  Postmaster  General.  Postmasters  at 
that  time  had  the  exclusive  privilege  of  sending  their 
own  newspapers  thru  the  mail.  In  1792,  however, 
it  became  a  law  that  any  newspapers,  no  matter  by 
whom  published,  could  be  sent. 


THE  POSTAL  SERVICE  223 

The  postage  stamp  was  introduced  in  England  in 
1840  and  in  the  United  States  in  1847.  In  1876  an 
international  postal  union  was  established  among  the 
different  nations  so  that  regular  mails  could  be  ex- 
changed. 

3.  Activities  of  post  office  constantly  expanding. — 
To  the  post  office  department  a  number  of  other  ac- 
tivities besides  the  transmission  of  mail  have  been  at- 
tached and  there  is  no  telling  what  further  functions 
may  be  given  to  it.  Registering  letters  was  a  great 
innovation  when  first  put  into  effect. 

The  money  order  system  is  relatively  a  late  develop- 
ment. It  was  first  established  in  England  as  a  pri- 
vate matter  thru  the  enterprise  of  three  English  postal 
clerks.  They  developed  the  system  of  making  pay- 
ments thru  the  mails  and  later  it  was  made  a  part 
of  the  regular  postal  work.  Postal  savings  was  estab- 
lished in  Great  Britain  in  1801  but  not  until  compara- 
tively lately  in  this  country.  In  1865,  too,  Great 
Britain  started  in  connection  with  the  postal  savings 
a  system  of  annuities  and  life  insurance.  The  carry- 
ing of  parcels  by  the  post  office  also  began  in  Europe 
much  earlier  than  in  this  country. 

4.  Particular  reasons  for  government  management 
of  the  post  office. — There  are  many  special  reasons 
why  the  post  office  in  particular  should  be  managed 
by  the  State.  The  idea  of  a  government  mono|)oly 
appeared  early,  and  from  the  very  beginiiing  as  a  re- 
sult, the  post  office  had  a  close  connection  with  the 
government.     The  need   for  secrecy  also,   from   the 


224.         BUSINESS  AND  THE  GOVERNMENT 

first,  was  very  important  and  the  State,  in  those  days, 
was  the  only  agency  which  could  undertake  and  guar- 
antee this.  We  do  not  ordinarily  think  much  about 
it,  but  the  European  war  showed  us  how  often  it  be- 
comes extremely  embarrassing  when  the  privilege  of 
secrecy  is  withdrawn.  The  loss  and  delay  consequent 
upon  the  examination  of  mails  was  clearly  brought 
out  during  the  great  war  by  the  action  of  Great 
Britain  in  stopping  and  censoring  mails  between  the 
United  States  and  neutral  countries.  At  first  some 
believed  that  this  practice  gave  much  information  to 
British  manufacturers  regarding  American  business 
connections. 

In  business  dealings,  individuals  in  the  United 
States  will  trust  to  the  mails  information  which  they 
would  not  trust  to  the  telegraph  or  telephone.  While 
the  employes  of  the  telegraph  and  telephone  compa- 
nies are  sworn  to  secrecy,  at  times  they  cannot  be 
trusted  and  often  are  careless  or  indifferent.  More- 
over, the  lines  are  easity  tapped. 

5.  Possibility  of  governmental  revenue. — The  post 
office  was  early  seen  to  be  a  possible  source  of  profit, 
and  the  State  undertook  it  for  that  reason.  At  the 
present  time,  however,  only  a  few  countries  are  actu- 
ally running  their  postal  systems  at  an  apparent 
profit,  and  it  is  doubtful  if  even  these  cases  would 
show  a  profit  if  proper  accounting  covering  all  items 
of  expense  were  in  vogue.  In  the  United  States,  the 
deficits  for  a  number  of  years  have  been  very  large  so 
that  the  total  loss  from  1837  to  1912  was  well  over 


THE  POSTAL  SERVICE  225 

three  hundred  milhon  dollars,  and  this  amount  would 
be  very  much  larger  if  proper  charges  were  included 
in  the  expenditures. 

6.  Social  aspects  prominent  in  the  post  office. — 
The  educational  and  social  aspects  of  the  public  man- 
agement of  the  postal  service  are  also  very  great. 
The  cheap  delivery  of  letters,  newspapers,  magazines, 
and  books  is  extremely  important.  The  extension  of 
service  into  country  districts,  where  no  private  com- 
pany can  afford  to  extend  it,  is  worth  while  from  the 
social  and  educational  viewpoint.  This  service  can 
be  most  easily  secured  by  government  monopoly. 
The  postal  savings  bank  in  accepting  money  from 
those  who  will  not  trust  the  ordinary  banks,  and  who 
in  many  places  have  not  the  right  kind  of  banking 
facilities,  is  also  a  great  social  gain. 

The  post  office,  then,  has  many  historic  reasons 
showing  why  it  is  peculiarly  a  business  to  be  managed 
by  the  government.  In  other  ways  also,  it  is  marked 
off  from  common  industrial  enterprises  in  such  ways 
as  to  indicate  that  it  is  a  fit  field  for  public  manage- 
ment to  enter. 

7.  Should  be  run  efficiently  and  economicalli/. — 
The  post  office  is  unifjuely  a  business  which  the  gov- 
ernment should  be  able  to  run  efficiently  and  econom- 
ically. The  risks  of  ordinary  trade  are  absent.  In 
the  post  office,  costs  remain  fairly  constant,  large 
quantities  of  materials  do  not  have  to  l>e  stored  with 
consequent  changes  in  prices  or  depreciation  in  (jual- 
ity.     Very  little  of  the  speculative  element  is  pres- 


226        BUSINESS  AND  THE  GOVERNMENT 

ent,  unforeseen  losses  are  reduced  to  a  minimum.  A 
system  of  transportation  is  at  hand  in  the  railroads  so 
that  no  expensive  development  of  plant  is  necessary. 
Capital  charges  are  low,  compared  with  other  big  busi- 
ness. Postal  charges  are  simple.  The  business  is 
one  of  orderly  routine,  reducible  to  a  system,  and 
needs,  relatively  speaking,  only  a  small  number  of 
high  salaried  executives  and  technical  men.  Above 
all,  it  is  constantly  under  the  eye  of  the  public,  which 
is  able  to  check  up  and  to  object  if  things  go  wrong. 
Very  few^  kinds  of  business,  in  brief,  are  so  admirably 
adapted  to  government  management.  If,  then,  the 
government  is  not  able  to  run  this  business  efficiently 
or  economically,  there  would  seem  to  be  little  hope  of 
its  succeeding  in  a  more  complex,  more  difficult  enter- 
prise. A  brief  examination  should  result  in  a  clear- 
cut  decision  as  to  whether  the  post  office  should  fur- 
ther extend  its  activities. 

8.  Financially  a  failure. — The  United  States  Post 
Office  from  1837  to  1912  had  a  total  deficit  amounting 
to  the  tidy  sum  of  $330,000,000.  Even  at  this,  the 
loss  is  probably  underestimated,  as  accurate  account- 
ing methods  which  included  proper  expenditures 
would  without  doubt,  considerably  raise  the  amount. 
Was  this  amount  dehberately  devoted  to  the  public 
service? 

In  the  political  jealousies  between  different  admin- 
istrations, slipshod  methods  are  often  interestingly 
brought  out.  In  a  statement  issued  ^lay  30,  1913, 
Postmaster  General  Burleson  in  trying  to  overthrow 


THE  POSTAL  SERVICE  227 

the  contentions  of  former  Postmaster  Hitclicock  that 
a  surplus  had  been  obtained  during  the  latter's  ad- 
ministration, said : 

Notwithstanding  the  great  zeal  displayed  in  the  effort  to 
place  the  department  on  the  so-called  paying  basis,  and  the 
resulting  injuries  to  the  service,  the  claim  of  the  former 
Postmaster  General,  that  the  service  actually  yielded  a  profit 
in  1911,  has  no  foundation  in  fact. 

Instead  of  a  surplus  of  $219,118.12  for  that  year  (1911), 
as  claimed  by  my  predecessor,  it  is  clearly  demonstrated 
that  there  was  in  reality  a  deficit  of  more  than  three-quarters 
of  a  million  dollars.  Furthermore,  a  close  anaylsis  of  the 
financial  statement  of  the  year  1912  discloses  the  fact  that 
the  admitted  deficit  of  $1,758,523.10  for  that  year  was  under- 
stated by  nearly  $100,000. 

9.  Proper  accounting  methods  Jacking. — An  in- 
teresting experience  of  a  private  nature  confirms  tlie 
statement  regarding  possible  inaccuracies.  In  lOl-t 
some  inquiries  were  made  as  to  the  cost  accounting 
system  employed  in  the  Post  Office  Department  under 
Mr.  Burleson's  administration.  One  of  the  auditors 
in  the  Post  Office  Department  was  asked  what  system 
they  had  for  cost  accounting.  The  auditor  replied, 
"Why,  man,  what  are  you  thinking  of?  There  is  no 
such  thing  in  the  Post  Office  Department."  I-'ui-- 
ther  incjuiry  verified  the  statement.  From  the  stand- 
point of  a  business  man  or  an  express  company  this 
would  look  like  very  loose  management,  but  as  a  mat- 
ter of  fact  the  auditor  could  not  give  any  definite  state- 
ment of  the  cost  accounting  system.  'I'he  fauh  is 
clearly  not  confined  to  eitlier  party  or  either  admin- 


228         BUSINESS  AND  THE  GOVERNMENT 

istration.  It  is  a  question  of  government  manage- 
ment. 

10.  Other  factors  causing  inefficiency. — Many  other 
reasons  can  be  given  why  the  post  office  makes  a  sorrj' 
showing  along  efficiency  lines. 

Despite  the  fact  that  the  Civil  Service  reform  acts 
have  on  the  whole  been  favorable  in  that  they  have 
to  a  considerable  degree  stopped  the  abuses  of  the 
spoils  system,  it  still  remains  true  that  in  both  the  Fed- 
eral Government  and  many  State  Governments,  the 
spirit  of  that  system  is  not  yet  dead.  It  is,  of  course, 
proper  that  heads  of  departments  who  are  the  presi- 
dent's political  advisors  on  matters  of  policy  change 
with  the  new  administration,  but  it  is  not  best  that 
many  subordinates  in  responsible  positions  who  ought 
to  stand  or  fall  wholly  by  the  value  of  their  work 
are  turned  out  for  political  reasons. 

The  Civil  Service  rules,  too,  protect  the  clerks  in 
the  lower  positions  so  far  as  the  retention  of  their 
offices  is  concerned,  but  they  have  little  effect  in 
securing  for  them  properly  earned  promotion.  Post 
masters,  revenue  officers.  United  States  marshalls, 
and  other  officials  of  similar  rank  are  appointed  or 
dropped  chiefly  on  account  of  their  political  affilia- 
tions. When  a  new  president  is  elected  he  is  at  once 
beset  by  literally  many  thousands  of  citizens  eagerly 
ambitious  to  serve  their  country  in  office  and  the  basis 
of  the  claim  of  the  applicant  is  not  primarily  that 
of  fitness,  but  rather  that  of  party  service. 

In  another  direction  the  Civil  Service  system  has 


THE  POSTAL  SERVICE  229 

an  evil  influence.  So  careful  have  our  law  makers 
been  to  protect  the  worthy  in  their  positions  that  they 
have  made  it  extremely  difficult,  practically  impossible 
in  many  cases,  to  get  rid  of  the  unworthy,  unless  they 
perform  some  criminal  act.  So  long  as  they  obey 
general  regulations,  as  a  rule  they  can  hold  their  posi- 
tions even  tho  grossly  inefficient.  When  the  post- 
master in  a  country  village  can  be  judged  and  pro- 
moted or  dismissed  on  the  same  principles  as  the  rail- 
way station  agent  we  shall  see  a  decided  improvement 
in  our  post  office  system. 

Postmaster  General  Burleson  is  the  authority,  in 
his  1915  report,  for  the  statement  that  in  the  build- 
ing up  of  the  rural  delivery  service,  efficiency  and 
quality  of  service  have  not  been  the  controlling  factors, 
but  rather  that  special  favor  and  ]H'ivilege,  creating 
"gross  extravagance"  have  prevailed.  New  routes 
have  at  times  been  started  without  sufficient  reason. 
In  certain  favored  localities,  two  deliveries  a  day  have 
been  given,  when  others  of  greater  desert  were  not  so 
served.  Again,  in  the  erection  of  new  post  office  build- 
ings that  were  not  actually  needed,  political  activity 
and  favoritism  have  played  too  conspicuous  a  part. 
In  certain  instances  new  l)uil(liiigs  have  been  erected 
where  fully  satisfactory  quarters  might  have  easily 
been  found  at  a  modest  rental.  He  wisely  suggests 
that  public  buildings  erected  for  post  office  purposes 
should  be  standardized  and  their  costs  made  com- 
mensurate with  the  needs  of  the  service.  Moreover, 
he  recommends  that  in  the  erection  of  public  buildings 


230         BUSINESS  AND  THE  GOVERNMENT 

the  needs  of  the  service  should  be  kept  primarily  in 
mind  and  not  merely  the  erection  of  ornamental 
buildings  to  gratify  the  artistic  taste  of  the  citizens  of 
the  town,  in  which  they  are  located. 

The  annual  "pork  barrel"  measures  including  large 
sums  for  post  offices  in  small  towns  where  the  postal 
income  is  very  small  are  well  known  to  all.  A  recent 
postmaster-general  himself  said  that  if  he  could  keep 
down  "useless  extravagances  not  postal  but  political" 
the  country  might  have  one  cent  postage. 

11.  Reasons  for  the  parcel  post. — Three  motives 
actuated  the  establishment  of  the  parcel  post:  (1) 
the  experience  of  other  countries,  (2)  the  possibility 
of  lowering  rates,  and  (3)  the  general  resentment  to- 
ward the  attitude  of  the  express  companies.  The  ex- 
press companies  because  of  their  attitude  toward  the 
public  have  at  times  perhaps  deserved  to  be  troubled. 
The  entrance  of  the  government  into  the  express  busi- 
ness IS  a  good  example  of  government  competition 
with  private  companies  in  such  a  way  as  to  cause  a 
noteworthy  improvement  in  the  latter's  methods  and 
points  of  view.  Before  the  government  took  control 
of  them  as  a  war  measure,  express  companies  in  order 
to  meet  the  parcel  post  competition  gave  better  service 
and  lower  rates,  partly  under  order  of  the  Interstate 
Commerce  Commission.  From  this  angle,  the  en- 
trance of  the  government  into  the  parcel  post  business 
was  serviceable. 

12.  Parcel  post  introduces  a  new  principle. — The 
direct  carrying  on  of  a  business  in  competition  with 


THE  POSTAL  SERVICE  231 

private  companies  thru  a  general  parcel  post,  how- 
ever, seems  to  introduce  a  new  principle  in  our  gov- 
ernment work.  If  so,  it  should  be  justified  on  the 
ground  that  it  does  actually  effect  a  saving  of  indus- 
trial energy  to  the  people ;  and  that  is  a  question  that 
seems  by  no  means  to  have  been  settled.  An  in- 
vestigation made  in  1914  by  the  Research  Depart- 
ment of  the  Alexander  Hamilton  Institute  with  the 
aid  of  some  hundreds  of  shippers  as  to  the  relative 
efficiency  of  handling  packages  by  freight,  by  ex- 
press and  by  the  parcel  post,  covering  an  average 
business  of  118,000  parcels  per  day,  indicated  that, 
altho,  in  the  opinion  of  these  sliippers  the  parcel 
post  had  the  advantage  of  the  express  companies  in 
cheapness,  in  all  other  particulars — speed,  convenience 
in  pick-up  and  delivery,  care  in  transit,  collections, 
cost  of  insurance,  tracing  of  lost  packages  and  adjust- 
ments of  claims — a  large  majority  of  the  shij)pers 
preferred  the  express  companies.  In  the  matter  of 
cost,  the  charges  by  freight  were  cheaper  than  by  par- 
cel post  or  express,  but  of  course  the  cliaracter  of  the 
packages  differed.  Even  as  regards  clieapness,  how- 
ever, some  shippers  said  tlie  post  was  unsatisfactory, 
since  it  took  longer  to  prepare  a  parcel  for  mailing 
than  for  express,  the  packing  cost  more,  the  package 
was  more  liable  to  breakage,  and  if  lost,  the  Post  Office 
Department  "fills  out  a  paper  and  makes  an  attempt 
to  locate  it  but  never  finds  the  goods." 

13.  Post  office  has  never  determined  costs. — Again 
the  question  of  cost  to  the  public  in  distinction  from 


232         BUSINESS  AND  THE  GOVERNMENT 

cost  to  the  shipper  seems  as  yet  entirely  unsettled, 
for,  so  far  as  one  can  learn,  the  Post  Office  Depart- 
ment has  no  system  of  cost  accounting  in  connection 
with  the  parcel  post.  In  consequence  no  one  can  de- 
termine whether  it  is  really  carrying  at  lower  cost 
than  do  the  express  companies,  or  whether,  as  seems 
not  improbable,  the  difference  in  charge  to  shippers 
is  made  up  by  the  low  rates  forced  on  the  railroads 
against  their  will,  or  by  shifting  the  burden  on  other 
branches  of  the  postal  service,  or  upon  the  taxpayers. 
The  railroads  claim  that  they  have  been  most  unjustly 
treated  and  many  senators  and  members  of  Congress 
agree  that  the  burden  has  been  j^laced  upon  them. 
Certainly  the  Post  Office  Department  has  no  right 
to  claim  success  in  this  regard  until  it  can  show  cost 
accounts  that  are  clearly  comparable  with  those  of  the 
express  companies. 

14.  Government  urged  to  take  over  telegraphs  and 
telephones. — As  already  stated,  even  before  the  war 
Postmaster  General  Burleson  in  his  annual  reports 
made  the  recommendation  that  the  telegraph  and  long 
distance  telephone  systems  of  the  United  States  should 
be  incorporated  into  the  postal  establishment,  and 
claimed  that  the  welfare  and  happiness  of  the  nation 
depended  upon  "the  fullest  utilization  of  these  agen- 
cies by  the  people,  which  could  only  be  accomplished 
thru  government  ownership."  In  speaking  of  the 
recommendation  of  the  War  Department  for  tlie 
transfer  of  the  Alaskan  cables  and  telegraphs,  ^Ir, 
Burleson    also    asked    that    the    Porto    Rican    and 


THE  POSTAL  SERVICE  233 

Hawaiian  systems  be  turned  over  to  him  on  the 
ground  that  "the  services  are  so  detached  geographic- 
ally as  to  preclude  complicated  relationships  with 
neighboring  systems,  and  are  sufficient  in  extent  to 
afford  valuable  experimental  demonstrations  for  the 
postal  service  looking  eventually  to  the  administration 
of  a  complete  national  service."  If  the  business  and 
social  welfare  of  the  people  of  the  United  States  are 
to  depend  largely  upon  a  government-owned  tele- 
graph and  telephone,  it  is  perhaps  well  that  we  have 
had,  as  a  war  measure,  a  brief  test  of  the  post  office 
efficiency  in  this  field.  But  it  may  be  well  also  to  con- 
sider how  the  population  of  European  countries  have 
fared  under  their  government-managed  systems. 
From  the  standpoint  of  the  development  of  this  in- 
dustry, the  United  States  and  most  of  Canada  with 
their  private  plants  have  had  seemingly  a  mucli  greater 
success  than  European  governments  have  had  with 
their  puljliclj'-managed  plants.  For  example,  the 
United  States  has  9.1  telephone  stations  to  each  one 
hundred  of  population,  and  Canada  5.6,  altho  its 
population  is  widely  scattered,  while  the  densely 
populated  countries  of  Europe  have  only  .8  stations  to 
one  hundred  population.  In  Germany  where  public 
management  was  before  the  war  generally  considered 
efficient,  only  1.9  stations  per  100  of  population  are 
to  be  found,  1.6  in  England  and  3.4  in  London. 

In  the  thirty-three  cities  of  Europe  with  a  popula- 
tion of  over  five  hundred  thousand,  only  3.2  stations 
to  one  hundred  population  were  used,  while  in  the 


234.         BUSINESS  AND  THE  GOVERNMENT 

eleven  cities  of  the  same  class  in  the  United  States, 
10.4  were  utilized.  The  investment  in  the  United 
States  in  telephone  companies  ( 1917 )  was  $1,064,800,- 
000  while  the  investment  in  Europe  was  $635,925,000. 
It  is  also  worth  while  noting  that  whereas  the  invest- 
ment per  station  in  Europe  is  $172,  the  investment  per 
station  in  the  United  States  is  only  $125.  Taking 
into  consideration  the  quality  of  service  rendered  it 
would  seem  as  if  the  private  companies  in  the  United 
States  have  made  much  better  use  of  their  capital. 
Even  Congressman  Lewis  of  Maiyland,  an  ardent 
advocate  of  government  ownership,  admits  that  the 
Bell  system  is  an  organization  whose  securities  are  free 
from  water  or  inflation.  Looked  at  from  any  angle, 
the  development  of  the  private  companies  of  the 
United  States  and  Canada  is  much  better  than  any 
of  the  government  plants  of  Europe  and  even  of 
Austraha  and  New  Zealand. 

15.  Unprogressiveness  of  government  plants. — 
The  bureaucratic  mind  can  hardly  be  expected  to 
show  alertness  and  enterprise  according  to  the  state- 
ments of  Mr.  Sidney  Brooks,  in  speaking  of  govern- 
ment managed  telephone  systems.  Inasmuch  as  tlie 
organization  of  a  o^overnment  office  with  a  staff  vir- 
tually  irremovable  forbids  enterprise,  officialdom  pro- 
motes subordination,  or  servility,  unwillingness  to  con- 
centrate responsibility  and  in  consequence  the  stifling 
of  initiative.  The  ideal  of  service  rather  than  the  hope 
of  gain  or  the  desire  to  retain  the  safe  place  is  doubt- 
less found  to  a  far  greater  degree  in  private  than  in 


THE  POSTAL  SERVICE  235 

public  enterprises.  Mr.  Brooks  is  the  authority  for 
the  statement  that  not  one  of  the  many  discoveries  that 
have  transformed  the  technical  and  commercial  man- 
agement of  the  development  of  the  telephone  within 
the  last  thirty  years  has  emanated  from  a  government 
department.  European  governments  have  been  the 
last  to  adopt  them  and  the  verdict  of  real  experts  on 
governmental  officials  in  the  telephone  service  is  that 
they  have  not  learned  their  business.  All  the  govern- 
ments of  Europe  in  this  field  of  public  activity  have 
made  the  fundamental  mistake  of  "seeking  efficiency 
from  economy  rather  tlian  economy  from  efficiency." 
In  London,  the  Post  Office  and  the  Xational  Tele- 
phone Company  have  been  working  side  by  side  in 
the  telephone  field.  The  published  accounts  make 
it  clear  that  altho  the  post  office  pays  neither  rent  nor 
taxes  nor  local  rates,  its  working  expenses  have  been  ' 
73%  of  the  gi'oss  receipts  whereas  those  of  the  private 
corporations  have  been  only  56%  of  its  gross  profits. 

10.  What  guiding  principles  should  he  followed? — 
The  question  arises,  can  we  find  a  guiding  principle 
to  determine  where  the  post  office  shall  stop  its  work. 
Shall  it  primarily  do  work  for  the  government?  Shall 
it  protect  the  savings  of  the  poor?  Shall  it  promote 
private  business  and  if  so,  shall  this  be  done  at  the 
expense  of  the  taxpayers  or  solely  at  the  expense  of 
the  shippers?  All  these  questions  must  be  answered 
before  we  shall  know  where  to  draw  the  line.  Is  the 
post  office  to  take  over  these  additional  activities,  if 
so,  why?     For  better  service,  for  cheaper  service,  for 


236        BUSINESS  AND  THE  GOVERNMENT 

the  effect  upon  the  people  in  the  way  of  protection? 
We  must  seek  a  guiding  principle  and  we  must  be 
sure  of  our  facts. 

17.  Government  should  act  on  basis  of  accurate 
knowledge. — That  the  tendency  before  the  war  ex- 
periences was  strong  toward  increasing  the  field  of 
government  management  thru  the  post  office  depart- 
ment is  clear.     It  is  by  no  means  clear,  however,  how 
far  it  is  wise  to  go  in  that  direction.     We  are  in  the 
dark  as  to  the  clean-cut  principles  on  which  decisions 
should  be  reached,  and  as  to  data  on  the  actual  effects 
of  existing  conditions  so  gathered  that  the  experiences 
of  different  systems  are  clearly  comparable.     Until 
the  government  institutes  a  better  system  of  cost  ac- 
counting so  that  we  can  know  who  it  is  that  pays  the 
rate  on  parcels,  there  ought  to  be  no  further  exten- 
sion of  the  parcel  post.     While  our  privately  managed 
telephone  and  telegraph  companies  show  such  initia- 
tive,  progressive   development  and  public   spirit  in 
meeting  the  nation's  needs,  one  need  expect  no  ad- 
vantage in  the  post  office  management  of  these  in- 
dustries.    Our  postal   savings  banks   seem   to  meet 
a  genuine  need,  but  surely  the  post  office  ought  not  to 
assume  any  responsibility  in  these  matters  without 
very  careful  consideration  of  the  principles  involved. 
18.  Special  tvar  services. — Like  other  departments 
of  the  government,  and  like  private  industry,  the  Post 
Office  Department  was  drawn  into  the  web  of  war 
activity  in  many  fields.     Thru  its  function  of  regulat- 
ing access  to  the  mails  it  became  an  organ  for  com- 


THE  POSTAL  SERVICE  237 

bating  the  spread  of  seditious  utterances.  It  came  to 
the  aid  of  the  Treasury  thru  the  part  that  it  has  played 
in  the  sale  and  administration  of  War  Savings 
Stamps.  Since  the  institution  of  the  Postal  Savings 
System,  the  post  office  has  come  -into  more  intimate 
relations  with  the  people,  especially  those  of  foreign 
origin,  and  their  good-will  towards  the  post  office  has 
been  a  factor  of  importance  in  the  success  whicli  has 
attended  the  War  Savings  plan.  The  department 
came  to  the  aid  of  the  army  and  navy  thru  the  ar- 
rangements which  it  made  for  the  distribution  of  read- 
ing matter  to  the  military  forces.  In  times  of  peace, 
however,  our  experiences  indicate  clearly  that  it  is 
wise  not  to  extend  the  range  of  the  departments  activi- 
ties without  the  clear  demonstration  of  a  need  that  can- 
not be  met  by  private  agencies.  JNIoreover,  even  in 
such  cases,  great  care  should  be  taken  to  provide 
against  carelessness  and  inefficiency. 

REVIEW 

Under  what  conditions  should  the  public  be  obliged  to  pay- 
thru  taxation  for  the  losses  incurred  in  sending  postal  matter 
at  less  than  cost  rates? 

Why  is  it  impossible  to  place  dependence  upon  the  figures  of 
the  Post  Office  department  sur))luses  or  deficits? 

Is  it  a  wise  move,  when  we  are  ahead  of  the  world  in  tele- 
phone developmtnt,  to  change  from  private  management  to 
government  ownership? 

Why  is  a  more  rapid  use  of  new  technical  inventions  likely  to 
be  made  under  private  management? 

Is  it  wise  from  the  standpoint  of  efficiency  to  (■x])and  greatly 
the  activities  of  the  post  office? 

In   what  ways   are  the   railroads  less   adapted   to   government 
management  than  the  post  office? 
XXIV— 17 


CHAPTER  XII 

SHOULD  PUBLIC  MANAGEMENT  BE  EXTENDED? 

1.  Government  management  not  a  panacea. — To 
many,  government  management  (here  taken  to  in- 
clude ownership  with  management)  seems  an  obvious, 
relatively  simple  and  practicable  way  of  dealing  whole- 
sale with  monopoly  conditions.  The  Socialist  party 
has  as  its  cardinal  principle  the  enactment  of  legisla- 
tion directed  toward  public  management  of  the  means 
of  production,  distribution  and  exchange.  Others  see 
in  the  government  management  of  the  railroads,  of 
the  steel  industry  or  of  the  merchant  marine  a  simple 
panacea  for  the  social  ills  of  each  particular  industry 
or,  in  the  case  of  land,  for  the  economic  ills  of  mankind. 
Against  this  wholesale  opinion  practical  business  men 
and  the  best  scientific  authorities,  with  scarcely  an  ex- 
ception, emphatically  protest. 

2.  Advantages  at  times  greater  than  disadvantages. 
— It  must  be  recognized,  however,  that  under  special 
circumstances  and  in  some  particular  lines  of  indus- 
trial activity,  the  advantages  of  public  management 
are  indisputable  and  far  outweigh  the  disadvantages. 
For  example,  to  leave  in  private  hands  certain  indus- 
tries which,  if  their  exploitation  were  unchecked,  might 
threaten  rapidly  to  deplete  the  natural  resources  of  a 

238 


PUBLIC  MANAGEMENT  239 

nation,  may  be  an  extremely  unwise  policy  for  the 
state  to  follow.  Private  owners,  who  may  be  pos- 
sessed of  high  personal  integrity,  but  who  as  business 
men  are  not  immediately  concerned  in  the  future  wel- 
fare of  the  country,  might  by  their  actions  in  behalf 
of  their  companies  force  the  public  to  take  over  the 
management  of  their  particular  industries  in  the  pub- 
lic interest.  Forestry — even  the  coal  industry — may 
be  cited  as  examples  in  which  private  ownership  and 
management  might  lead  to  national  bankruptcy  of 
natural  resources.  Most  people  now  recognize  the 
need  of  our  forest  preserves. 

3.  Importance  of  health. — Industries  vitally  affect- 
ing the  health  of  a  nation  or  of  a  municipality  may 
in  many  instances  require  government  management. 
These  industries  include  sewage-disposal  plants  and 
care  of  the  streets  and  usually  of  the  water  works,  all 
of  which  have  social  advantages  under  public  manage- 
ment which  overwhelmingly  outweigh  any  economic 
disadvantages. 

4.  The  near  and  the  extension  of  public  manage- 
ment.— The  most  unusual  lengtlis  to  which,  as  the  re- 
sult of  war  conditions,  governments  went  in  the  man- 
agement of  business  have  naturally  aroused  many 
questions  as  to  the  principles  underlying  the  exten- 
sion of  governmental  activity.  iVll  agree  that  mili- 
tary efficiency  must  be  the  supreme  goal  overriding- 
all  other  except  internationally  moral  considerations 
at  a  time  when  nations  are  fighting  for  existence.  It 
is  well  to  remember,  however,  as  Lincoln  did  during 


240         BUSINESS  AND  THE  GOVERNMENT 

the  Civil  War,  that  many  acts  are  justified  as  war 
measures  which  would  be  unqualifiedly  condemned  in 
days  of  peace.  No  one  questions  that  in  time  of  war, 
the  government  should  go  to  extremes,  not  only  in 
direct  military  defense,  but  also  in  the  indirect  defense 
of  the  country,  by  preventing  commercial  losses  or 
financial  crises.  All  the  great  countries  involved  in 
the  great  war  gave  unique  and  startling  examples  of 
government  management  in  fields  usually  left  in  pri- 
vate hands,  such  as  the  direction  of  private  manu- 
facturing plants  supplying  war  materials,  the  con- 
trol of  prices,  the  complete  regulation  and  distribu- 
tion of  food  supplies,  and  the  various  financial  meas- 
ures taken  in  order  to  insure  the  normal  business  life 
of  the  nation  and  to  prevent  credit  demoralization. 
All  these  war  measures  were  justified  as  necessary  to 
the  self-preservation  of  the  nations  involved. 

5.  Extension  of  government  management  in  the 
United  States. — War  also  pushed  the  United  States 
into  a  new  era  in  the  relations  between  government 
and  the  management  of  business.  Government  man- 
agement of  the  railroads  became  a  fact ;  the  national 
control  of  the  mining,  distribution  and  even  private 
consumption  of  coal,  coke  and  fuel  oils  was  under- 
taken, while  government  regulation  and  control  ex- 
tended in  every  direction.  Wheatless  days,  meatless 
days,  heatless  days  and  others  were  more  or  less  cheer- 
fully endured  by  the  American  public.  No  doubt, 
these  w^ere  necessary,  and  not  imposed  >vithout  due  in- 
vestigation and  cause,  but,  nevertheless,  they  marked 


PUBLIC  MANAGEMENT  241 

a  new  era,  in  which  the  inbred  distrust  of  the  govern- 
ment conduct  of  business  was  promptly  laid  aside  for 
a  vast  extension  of  governmental  regulation  and  man- 
agement. The  old  "laissez-faire"  policy  followed  so 
long  in  this  country,  based  upon  the  conviction  that 
private  is  better  than  government  management;  that 
business  should  be  left,  as  far  as  possible  and  con- 
sonant with  justice  and  fair  dealing,  unhampered  in  its 
o^^erations,  was  for  the  time  abandoned.  Generally 
speaking,  however,  policies  adopted  to  meet  tempo- 
rary^ needs  tend  to  remain  permanent  factors  in  the 
governmental  organization  of  the  country.  Legisla- 
tors always  find  it  difficult,  almost  impossible,  to  re- 
trace their  steps ;  economic  policies  once  put  into  action 
thru  investigation  inevitably  became  political  ques- 
tions. 

6.  What  will  the  after-efects  he? — It  is  as  yet  too 
soon  to  judge  finally  the  after-effects  of  this  extraordi- 
naiT  extension  of  governmental  activity  on  the  trend 
toward  government  management,  which  in  this  coun- 
try, and  in  fact  the  world  over,  rapidly  gained  head- 
way during  the  war.  There  has  already  been  a 
prompt  revolt  from  extreme  positions.  Scores  of 
the  leading  business  men  who  so  promptly  and  unself- 
ishly placed  their  services  at  the  disposal  of  the  Gov- 
ernment in  time  of  peril  quickly  returned  to  private 
business.  Generally  it  seems  that  their  experience 
has  confirmed  tlieir  former  judgment  of  the  inevitable 
waste  and  inefficiency  of  Government  management. 

It  is   impossible  yet  to  balance  the  benefits  and 


242         BUSINESS  AND  THE  GOVERNMENT 

drawbacks  of  Government  control  and  management  of 
the  railways,  telegraphs,  telephones  and  cables,  but 
the  drawbacks  are  mentioned  more  often  than  the 
benefits.  We  must  wait  at  least  until  the  companies 
have  had  more  complete  opportunity  for  readjust- 
ment before  we  make  final  judgment.  Now  it  seems 
evident  that  the  view  of  President  Wilson  as  expressed 
in  his  book  "The  State"  has  been  proved  sound  by 
experience.  "Indeed,"  he  says,  "such  are  the  dif- 
ficulties in  the  way  of  establishing  and  maintaining 
careful  business  management  on  the  part  of  the  gov- 
ernment that  control  ought  to  be  preferred  to  direct 
administration  in  as  many  cases  as  possible — in  every 
case  in  which  control  without  administration  can  be 
made  effectual." 

7.  EcVtensioJi  of  j)ost  office  work. — In  this  country 
the  post  office  has  been  the  best  and  largest  example  of 
government  ownership  and  management,  tho  for  a 
time  overshadowed  by  the  management  of  railroads, 
and  the  entrance  of  the  Federal  government  into  other 
business  activities  chiefly  thru  an  extension  of  its  work 
into  such  fields  as  the  parcels  post,  banking,  and  the 
telegraph  and  the  telephone  business.  It  is  evident 
to  all  that  any  further  extensions  of  post  office  activi- 
ties should  be  determined  largely  by  the  success  or 
non-success  of  present  lines  of  work  and  the  illustra- 
tions given  in  the  chapter  on  the  post  oflSce  do  not  en- 
courage further  extension. 

In  this  whole  field  of  government  activity  no  prin- 
ciples have  been  definitely  established  on  a  basis  of 


PUBLIC  MANAGEMENT  243 

fact  in  this  country.  War  time  management  is  no 
test  of  what  a  country  can  do  in  peace.  Never  in 
peace  times  will  it  receive  such  a  favorable  trial  or 
operate  under  conditions  so  conducive  to  success. 
The  cordial  and  generous  support  of  business  men  was 
unstintedly  given.  The  best  executive  brains  in  the 
country  were  placed  at  the  disposal  of  the  nation,  and 
yet  there  were  no  conclusive  results.  Times  of  peace 
produce  very  different  conditions ;  with  the  great  likeli- 
hood that  politicians,  not  experts,  would  be  the  guides 
of  railway  management  if  the  lines  were  again  placed 
under  government  management.  Experiences  in  Eu- 
rope, where  social  conditions  are  largely  different  and 
where  the  military  aspects  of  the  question  have  always 
predominated,  have  in  the  past  been  used  as  the  stock 
examples.  Here  again,  one  must  be  careful  of  facts, 
careful  of  purpose,  careful  to  judge  different  so- 
cial conditions.  For  example,  in  judging  service  and 
rates  in  Europe  as  compared  with  those  in  the  United 
States,  many  varying  factors,  such  as  density  of  popu- 
lation, cost  of  living,  taxation,  and  systems  of  account- 
ing, must  be  considered  before  any  definite  answers 
can  be  given  regarding  the  relative  welfare  of  Eu- 
ropeans under  government  ownership  as  compared  to 
Americans  under  private  ownership. 

8.  Dishonest  financial  methods  must  stop. — On  the 
whole,  the  American  railroad  system,  when  compared 
to  those  of  other  countries  where  state-owned  railroads 
predominate,  have  little  of  which  they  need  be  ashamed 
and  much  of  which  to  be  proud.     A  most  wonderful 


2U        BUSINESS  AND  THE  GOVERNMENT 

record,  for  example,  is  that  of  the  Pennsylvania  Rail- 
road in  carrying  453,952,298  passengers  in  more  than 
3,000,000  trains  for  a  distance  of  10,000,000,000  miles 
without  a  fatal  accident. 

INIuch  of  the  feeling  against  the  railroads  in  this 
country  has  been  aroused  by  financial  juggling.  It  is 
a  regrettable  fact  that  instances  of  such  juggling,  in- 
volving whole  systems,  which  can  be  characterized  only 
as  robbery  have  occurred  in  the  last  few  years.  Yet 
on  the  other  hand  we  have  illustrations  of  many  rail- 
roads conservatively  managed,  with  a  long  period  of 
sustained  dividend  payments,  fair  dealings  with  em- 
ployes and  excellent  service  to  the  public.  It  is  doubt- 
ful whether  occurrences  of  bad  management  in  private 
hands  equal  the  inefficiency,  the  graft  and  the  pork- 
barrel  methods  of  political  agencies.  The  Federal 
Government  ownership  of  the  Union  Pacific  Rail- 
road was  by  no  means  a  success.  Railroad  officials 
and  financiers  with  the  best  interests  of  the  railroads 
at  heart  must  see  to  it  that  individuals  of  the  type  that 
managed  the  finances  of  the  Frisco  and  the  Rock 
Island  systems  are  eliminated.  Such  practices  only 
undo  the  work  of  legitimate  industry,  anger  the  public 
and  make  more  strong  the  feeling  that  only  govern- 
ment ownership  will  suffice  to  stop  such  conditions. 
Socialists  and  agitators  use  such  examples  thruout  the 
country  with  teljing  effect.  And  yet  such  cases  even 
now  are  rare. 

9.  Government  management  of  rail'ways  in  Canada 
a  failure. — The  experience  of  Canada  in  the  manage- 


PUBLIC  MANAGEMENT  245 

ment  of  her  railways  is  most  illuminating,  inasmuch 
as  that  country  has  one  great  railway  system  under 
private  management  and  one  owned  and  operated  by 
the  government.  The  former  has  regularly  paid 
good  dividends;  the  latter,  which  now  includes  the 
Grand  Trunk,  Grand  Trunk  Pacific  and  the  Cana- 
dian Xorthern  under  the  name  Canadian  Government 
Railways,  is  still  in  its  infancy  and  it  is  still  too  early 
to  form  an  unbiased  judgment  as  to  whether  it  will 
continue  to  earn  dividends  as  they  were  formerly  paid 
by  the  Grand  Trunk,  or  whether  the  whole  system 
will  share  the  fate  of  the  former  Intercolonial  Rail- 
way which  has,  for  years,  been  known  as  "Canada's 
White  Elephant."  It  is  a  road  more  than  one  thou- 
sand miles  long,  favorably  located  so  as  to  tap  the 
rich  iron  and  coal  mines  of  Nova  Scotia  and  for  the 
field  of  transportation  has  a  rail  monopoly.  Accord- 
ing to  Mr.  E.  R.  G.  Gordon,  the  government  has 
sunk  over  eighty-three  millions  of  dollars  in  this  road. 
Speaking  in  1914,  the  last  year  when,  owing  to  the 
war  business,  records  would  enable  us  to  reach  a 
sound  conclusion,  he  stated  that  in  the  best  year  that 
the  road  had  had,  1912,  this  railroad  lost  more  than 
four  million  dollars  net.  Another  authority  a  little 
earlier  stated  that  it  had  lost  on  an  average  of  nearly 
four  million  dollars  a  year  for  several  years.  An  old 
farmer  replying  to  the  question  as  to  why  this  govern- 
ment railway  had  failed  to  pay  said,  "Well,  you  see, 
the  boys  that  run  this  White  Elcpliant  think  more  of 
getting  the  votes  on  election  day  than  they  do  of  get- 


246        BUSINESS  AND  THE  GOVERNMENT 

ting  the  trains  in  on  time."  The  operation  of  that 
road  cost  some  $7,500  per  mile  a  year  whereas  on  the 
Grand  Trunk  the  operating  cost  was  only  some  $5,000 
and  even  less  on  the  Canadian  Pacific. 

10.  Government-managed  railroads  in  France  not 
a  success. — Another  bit  of  worth-while  evidence,  im- 
portant because  of  its  European  source,  comes  from 
one  of  the  best  known  and  most  reliable  of  European 
economists,  Professor  Paul  Leroy-Beaulieu  of  the 
College  de  France,  who,  writing  in  the  North  Ameri- 
can Review  of  March,  1913,  only  a  few  months  before 
the  outbreak  of  the  war  and  speaking  of  the  West- 
ern Railway,  the  largest  and  most  important  of  the 
old  government-owned  railroads  in  France,  said  that 
the  state  management  of  that  road  from  the  very  start 
had  been  continually  a  great  financial  and  technical 
disappointment.  Trains  were  late,  accidents  were 
happening  continually,  whereas  under  the  previous 
managements  not  a  single  passenger  had  been  killed 
for  ten  years.  The  financial  results  were  very  bad, 
constituting  a  great  burden  on  the  Treasury.  The 
year  before  the  state  took  over  the  operation  of  the 
Western  Company  there  was  a  net  deficit  of  twenty- 
seven  million  francs,  under  the  state  operation  the 
first  year  the  deficit  was  raised  to  thirty-eight  million 
five  hundred  thousand.  Later,  by  rapidly  succeed- 
ing steps  it  was  raised  in  four  years  to  ninety  millions. 
The  reasons  that  have  been  suggested  for  this  result, 
on  the  authority  of  the  Budget  Committee  of  the 
Chamber  of  Deputies  were  largely  the  increase  in 


PUBLIC  MANAGEMENT  247 

the  salaries  of  the  employes.  This  increase  amounted 
to  as  much  as  fifty-two  million  francs  within  five  years. 
In  France  there  seems  always  to  be  a  tendency  to  over- 
increase  the  number  of  the  employes  for  the  special 
political  benefit  of  the  party  in  power.  The  result 
has  been  in  France  that  public  opinion  is  completely 
opposed  to  state  management  and  even  tho  there  are 
a  large  number  of  Socialists  in  the  government  they 
do  not  seem  inclined  to  seek  for  a  large  increase  in 
government  ownership  and  management. 

This  would  indicate  that  European  peace  experi- 
ence, so  often  put  before  the  American  public  in  such 
a  favorable  light,  has  another  side. 

11.  Conditions  under  which  government  manage- 
ment may  be  a  success. — Many  years  ago,  in  1867, 
when  the  question  of  the  purchase  of  telegraphs  and 
railways  was  pending  in  Great  Britain,  W.  Stanley 
Jevons,  one  of  the  most  careful  and  unprejudiced 
investigators  of  the  last  century,  stated  that  in  his 
judgment  state  management  possessed  advantages 
under  the  following  conditions: 

(1)  When  numberless  widespread  operations  can 
be  efficiently  connected,  united  and  coordinated  only 
in  a  single,  all-extensive  government  system. 

(2)  When  the  operations  possess  an  invariable, 
routine-like  character. 

(3)  When  they  are  performed  under  the  public 
eye,  or  for  the  service  of  individuals  who  will  imme- 
diately detect  and  expose  any  failure  or  laxity. 

(4)  When  there  is  but  little  capital  expenditure, 


24>8        BUSINESS  AND  THE  GOVERNMENT 

so  that  each  year's  revenue  and  expense  account  will 
represent  with  sufficient  accuracy  the  real  commercial 
conditions  of  the  department. 

In  other  cases  he  thought  government  management 
unwise. 

Jevons  thought  the  post  office,  in  carrying  letters, 
was  a  success,  while  in  the  same  article  he  asserted 
that  it  is 

but  too  sure  that  some  of  the  state  manufacturing  establish- 
ments, especially  the  dockyard,  fonn  the  very  types  of  in- 
competent and  wasteful  expenditure.  They  are  the  running 
sores  of  the  country,  draining  away  our  financial  power. 

In  1875,  summing  up  the  experience  for  some  years 
of  the  post  office  with  the  telegraph,  he  regretted  "the 
financial  failure  of  the  telegraph  department  .  .  .  be- 
cause it  puts  an  almost  insuperable  obstacle  in  the 
way  of  any  further  extension  of  government  industry 
in  the  present  generation." 

He  favored  strongly  a  parcel  post,  but  said  that 
"the  experience  with  the  telegraph  department  dem- 
onstrated that  a  government  department  cannot  com- 
pete in  economy  with  an  ordinary  commercial  firm 
subject  to  competition." 

Yet  Jevons  liked  the  idea  of  a  parcel  post  and,  four 
years  later,  in  1879,  he  urged  strongly  the  adoption 
of  a  state  parcel  post  for  small  packages,  on  the 
ground  that  it  would  be  "a  really  great  work  of  social 
reform  to  be  achieved."  He  believed  "it  would  be 
the  harbinger  of  universal  free  trade  if  made  inter- 


PUBLIC  MANAGEMENT  24© 

national."  His  reasons  were  social  and  political,  not 
economic.  The  same  line  of  argument,  however, 
seemed  to  convince  him  that  it  was  not  practicable  or 
wise  for  the  state  to  take  over  the  railways,  chiefly  on 
account  of  the  complexity  of  management  and  the 
waste  that  w^ould  -be  almost  certain  to  result  from 
government  administration. 

12.  Manif  erroneous  statements  made  as  to  costs. — 
In  the  published  statements  of  the  relative  cost  of 
privately  and  publicly  managed  industries,  many  erro- 
neous statements  are  made,  based  largely  on  inade- 
quate analysis  from  an  accounting  standpoint.  In 
the  case  of  city-owned  establishments,  the  direct  ex- 
penses are  regularly  given,  but  overhead  charges  are 
rarely  properly  reckoned.  Would  any  portion  of 
the  mayor's  salary  be  included  for  general  oversight  ? 
The  chances  are  ten  to  one  that  the  offices  would  be 
located  in  a  municipal  building  which  would  be  free 
from  rent.  No  taxes  w^ould  be  paid  to  the  city. 
]Many  items  are  usually  left  out  that  should  be  in- 
cluded in  a  comparison  between  a  municipally  owned 
plant  and  a  privately  owned  establishment.  If  the 
comparisons  w^ere  made  fairly,  and  the  reports  in- 
cluded all  items  of  cost,  the  figures  would  rarely  be 
favorable  to  city  management. 

13.  Fallacies  in  government  figures. — Practical 
illustrations  of  the  differing  ways  in  which  govermnent 
and  private  costs  are  figured  were  given  a  few  years 
ago  in  the  proposal  for  a  government  owned  armor 
plant.     The  Secretary  of  the  Navy  estimated  that  the 


250        BUSINESS  AND  THE  GOVERNMENT 

government  could  make  armor  at  $262  per  ton  in  a 
plant  of  10,000  tons'  output  running  at  full  capacity. 
The  prevailing  price  at  the  time  this  estimate  was 
made  was  $425  a  ton.  This  difference  was  claimed  by 
the  government  as  an  advantage  of  government  manu- 
facture over  private  manufacture.  The  Bethlehem 
Steel  Company  claimed,  however,  and  rightly  so,  that 
this  was  fallacious  as  the  estimated  cost  covered  only 
labor  charges  and  no  general  expenses,  no  insurance, 
taxes  or  depreciation  of  plant,  no  interest  on  invest- 
ment and  no  capital  cost. 

But  these  items  must  be  paid  in  one  way  or  another. 
All  these  items  must  be  covered,  if  not  by  the  industry, 
then  by  taxes.  Even  government  estimates  of  neces- 
sary items  in  such  cases  have  often  been  notoriously 
underestimated.  Correct  accounting  methods  would 
make  a  vast  difference  in  many  of  the  statements  re- 
garding the  supposedly  low  cost  in  government  plants. 

Regarding  government  accounting  it  is  worth  wliile 
to  quote  a  few  statements  as  to  the  methods  employed 
in  government  affairs.  President  Taft,  in  his  mes- 
sage to  Congress,  January  7,  1912,  in  speaking  of 
economy  and  efficiency  in  the  government  service, 
said  that  no  system  has  been  devised  for  reporting  and 
presenting  information  regarding  the  government  ex- 
penditures so  as  to  reveal  actual  costs  nor  so  as  to 
make  possible  the  "exercise  of  intelligent  judgment 
regarding  the  expenditures  and  the  value  of  the  re- 
sults obtained."  With  large  interests  at  stake  the 
CongTess  and  the  Administration  have  never  had  all 


PUBLIC  MANAGEMENT  251 

the  information  which  should  be  currently  available 
if  the  most  intelligent  direction  is  to  be  given  to  the 
business  in  hand. 

It  has  already  been  remarked  that  the  accounting 
systems  of  our  municipalities  are  thoroly  impractical. 
All  of  them  publish  voluminous  reports  but  often 
they  are  simply  lists  of  figures  with  so  little  arrange- 
ment in  order  to  show  their  real  significance  that  no 
intelligent  person  can  draw  very  valuable  conclusions. 
No  private  business  enterprise,  railroads,  electric  light- 
ing plants,  or  even  an  ordinary  manufacturing  estab- 
lishment could  keep  out  of  bankruptcy  with  so  unin- 
telligent a  system  of  accounting  as  has  heretofore 
been  generally  followed  in  our  municipalities. 

One  of  our  best  authorities,  Dr.  Frederick  A.  Cleve- 
land, former  Professor  of  Finance  in  the  School  of 
Commerce,  Accounts  and  Finance  of  New  York 
University,  director  of  the  Bureau  of  Municipal  Re- 
search, New  York  City,  and  chairman  of  the  Federal 
Efficiency  Board,  an  authority  on  efficiency  in  city 
government,  in  an  article  entitled,  "The  Need  for 
Coordinating  Municipal,  State  and  National  Activi- 
ties," states  that: 

If  a  citizen  were  to  undertake  to  inform  himself  about  the 
government  of  the  United  States  he  would  have  before  him 
a  life  work.  Even  the  preparation  of  a  statement  of  ex- 
penditures for  work  would  require  the  analysis  and  recapitu- 
lation of  reports  prepared  pursuant  to  ninety  different  acts 
of  congress,  which  result  in  nearly  two  hundred  reports  re- 
lating to  financial  matters.  The  hopelessness  of  the  quest 
further  appears  when  it  is  found  that  in  no  two  departments. 


252         BUSINESS  AND  THE  GOVERNMENT 

and  in  many  instances  in  no  two  bureaus  in  the  same  depart- 
ment, is  the  same  classification  used.  It  is  therefore  quite 
impossible  to  get  together  a  statement  of  expenditures  which 
will  show  the  cost  of  activities  for  the  government  as  a  whole. 

This  is  really  a  humiliating  as  well  as  a  pitiable  state 
of  affairs. 

14.  Why  pnvafe  management  is  more  efficient. — 
From  the  standpoint  of  accounting,  then,  a  careful 
checking  up  is  necessary  before  we  can  get  an  accurate 
idea  of  the  inefficiency  of  government  management. 
But  why  are  private  plants  more  efficient  than  those 
under  government  management?  Public  manage- 
ment means  a  suspension  of  the  struggle  for  existence 
which  private  management  must  always  undergo. 
This  suspension  of  the  struggle  for  existence  in  pub- 
lic management  applies  to  every  grade  of  labor  con- 
cerned— directors,  managers  and  employes.  The 
profits  and  losses  of  a  privately  owned  business  affect 
those  engaged  in  it,  while  the  profits  and  losses  of  pub- 
licly managed  businesses  are  passed  on  to  the  public. 
In  public  business,  the  maximmu  of  efficiency  is  par- 
ticularly difficult  to  attain.  The  tendency  is  toward 
over-organization.  In  any  movement  to  reform  the 
administration  of  public  business  the  line  of  least  re- 
sistance is  usually  followed,  which  generally  means  to 
get  along  with  as  little  friction  as  possible,  and  to 
change  as  little  as  possible. 

In  private  business,  success  comes  only  from  a 
policy  of  activity  and  enterprise,  of  initiative  and  en- 
ergy.    The  force  of  workers  is  keyed  up,  efficiency  is 


PUBLIC  MANAGEMENT  253 

the  aim,  and  results  must  be  shown.  Administrative 
reforms  can  be  made  and  are  not  questioned.  The  di- 
rector in  a  private  concern  is  a  general.  The  head 
officer  in  a  public  concern  is  generally  a  success  be- 
cause he  is  a  pacifist,  and  because  he  uses  methods  that 
please. 

15.  Private  business  dynmnic. — In  matters  of  ap- 
pointments or  promotions,  public  business  again  is  at 
a  disadvantage,  for,  as  a  rule,  appointments  are  made 
from  civil  service  lists,  and  promotions  must  be  made 
by  seniority.  Relatively  speaking,  while  subordinates 
are  often  overpaid,  the  higher  grades  of  employes  are 
poorly  paid.  Security  takes  the  place  of  opportu- 
nity. In  private  business,  promotion  generally  comes 
from  efficiency  and  production  of  results.  High  sal- 
aries are  paid  to  the  leaders  because  such  outlay  pays 
in  the  long  run.  Opportunities  for  successful  men 
are  greater,  while  the  inefficient  are  vigorously  weeded 
out.  Opportunity  will  always  attract  the  more  pro- 
gressive and  the  more  ambitious.  Public  business 
tends  to  be  static,  private  business  is  dynamic.  Public 
business  is  forever  trying  to  secure  efficiency  thru 
economy,  while  private  business  aims  to  secure  econ- 
omy thru  efficiency.  Along  these  lines  a  tremen- 
dous advantage  lies  on  the  side  of  private  business. 

16.  Government  management  seldom  a  source  of 
revenue. — Government  management  is  often  advo- 
cated because,  it  is  claimed,  it  is  a  profitable  source  of 
revenue  to  the  state.  The  experiences  of  tlie  British 
Government  thru  the  telegraph   and  the  telephone 

XXIV — 18 


254.        BUSINESS  AND  THE  GOVERNMENT 

seem  on  the  basis  of  fact  sufficient  to  refute  this  theory. 
When  it  was  proposed  as  long  ago  as  1866  to  purchase 
for  the  Government  the  telegraph  lines,  an  estimate 
that  was  alleged  to  be  conservative  placed  the  cost  at 
$11,500,000.  Three  years  later,  after  long  negotia- 
tions, Parliament  appropriated  $35,000,000  to  make 
the  purchase,  while  in  addition  the  government  had  to 
pay  the  railway  companies  for  their  free-hold  interest 
in  the  telegraph  equipment  r mining  along  their  lines. 
This  added  another  $20,000,000,  so  that  the  mere  pur- 
chase amounted  on  the  whole  to  $55,000,000.  It  was 
expected,  of  course,  that  the  government  would  derive 
from  this  source  a  large  revenue.  For  the  first  two 
years  there  was  a  small  return.  Thereafter,  the  in- 
come was  not  sufficient  to  meet  the  interest  on  the  capi- 
tal investment  and  from  that  time  on  the  interest  on 
the  investment  has  been  paid  out  of  the  treasury,  that 
is  by  the  public.  The  people  insisted  upon  lower  tele- 
graph rates,  claiming  that  they  would  increase  the 
business  and  therefore  the  profits.  The  result  was 
just  the  opposite. 

In  fact  the  treasuries  of  nearly  all  countries  which 
manage  telegraphs  and  telephones  present  annually 
occurring  deficits,  in  many  cases  running  into  large 
figures.  These  are  also  made  good  by  taxation. 
The  history  of  our  post  office  shows  one  deficit  after 
another. 

Labor  often  makes  the  plea  that  conditions  of  work 
will  be  much  better  under  the  government,  and  state- 


PUBLIC  MANAGEMENT  255 

owned  and  managed  industry  is  advocated  on  this 
score.  Possibly  this  is  true  in  some  cases,  but  cer- 
tainly not  in  all.  Is  the  Federal  service,  for  example, 
preferable,  from  the  labor  standpoint,  to  the  service 
of  the  United  States  Steel  Corporation,  of  the  Ameri- 
can Telephone  and  Telegraph  Company,  of  the  Penn- 
sylvania Railroad  with  their  welfare  work,  their  busi- 
ness systems,  and  their  quick  recognition  of  abilitj^? 
Possibly  for  many  of  the  workers  of  the  lower  grades 
yet  never  for  those  of  the  higher.  The  ablest  men  fear 
the  acquisition  of  the  telegraph  and  telephone  by  the 
Government,  since  they  feel  it  would  lessen  their  op- 
portunities for  growth  and  advancement.  And  wher- 
ever the  workers  of  the  lower  grades  receive  wages 
higher  than  those  of  like  grade  in  private  employ,  it 
must  be  kept  in  mind  that  the  product  does  not  pay 
these  wages ;  the  taxpayers  pay  them. 

17.  Dangers  of  a  large  civil  service. — From  another 
angle  this  question  of  labor  in  a  wide  range  of  govern- 
ment ownership  would  present  a  very  great  problem. 
The  United  States  lias  already  had  an  illustration  of 
the  embarrassment  that  may  come  from  large  numbers 
of  Civil  employes  in  the  govermnent  service  in  tlie 
Boston  Police  Strike,  Sept.  9,  1919.  In  all  such 
cases,  the  Government,  the  agency  that  must  enforce 
order  and  fair  play,  finds  itself  in  the  position  of  one 
of  the  parties  to  the  dispute.  If  matters  come  to  a 
crisis,  as  in  Boston,  the  Executive  may  take  a  firm 
stand  and  straighten  things  out,  but  usually  the  dispo- 


256        BUSINESS  AND  THE  GOVERNMENT 

sition  of  the  Executive  is  to  avoid  the  culmination  of 
an  issue  by  yielding  gradually  to  demands  for  higher 
wages  or  for  a  less  burdensome  service. 

As  we  all  know,  tlie  demand  of  the  consumer  for 
low  rates  of  a  service  offers  a  serious  financial  disad- 
vantage to  the  Treasury ;  or,  as  in  the  case  of  our  rail- 
way's before  the  war,  to  the  industrial  development  of 
the  country.  Under  the  pressure  of  public  opinion 
railway  rates  were  held  so  low  and  in  many  cases,  espe- 
cially during  and  since  the  war,  street  railway  fares 
have  been  so  rigidly  maintained  on  a  low  basis  that 
inefficiency  and  in  many  instances  bankruptcy  has 
been  the  result.  Fortunately  now  the  Esch-Cummins 
Law  seems  likely  to  lessen  this  danger  to  the  railroads. 
In  Prussia  the  railway  service  with  its  eighty  million 
employes  was  maintained  on  almost  a  military  system 
following  largely  the  plans  of  the  organization  of  the 
national  army,  but  those  best  qualified  to  judge  have 
been  of  the  opinion  that  altho  the  German  trains  were 
run  fairly  well  on  time,  the  service  was  less  intelligent 
and  helpful  than  in  the  United  States,  and  all  freight 
rates  per  ton  mile  were  greatly  in  excess  of  those  in  the 
United  States.  Moreover,  any  attempt  to  direct  rail- 
road systems  of  the  United  States  and  Great  Britain 
on  a  similar  military  plan  would  be  utterly  hopeless. 
The  people  would  not  stand  for  it. 

It  is  certain  that  since  the  experience  of  the  influ- 
ence of  the  railroad  brotherhoods  in  the  passage  of  the 
Adamson  act  few  thoughtf id  students  of  business  or 


PUBLIC  MANAGEMENT  257 

politics  would  like  to  see  these  workers  direct  employes 
of  the  Government. 

18.  Could  dominate  country  thru  vote. — Senator 
Jonathan  Bom'ne,  Jr.,  in  speaking  of  the  eventuality 
of  govermiient  ownership  of  the  telegraph  and  tele- 
phone lines  as  advocated  by  Postmaster-General 
Burleson,  is  of  the  opinion  that  government  owner- 
ship would  result  eventually  in  complete  domination 
of  the  government  by  its  own  employes,  who  would 
vote  themselves  such  hours  and  such  pay  as  they  chose. 
He  estimated  that  the  taking  over  of  the  telegraph  and 
the  telephone,  of  the  railways  and  electric  lines,  water 
transportation  and  the  express  business  would  result 
in  adding  more  than  2,500,000  employes  to  the  Fed- 
eral service.     He  says: 

Taking  into  consideration  the  fact  that  in  the  last  ten 
presidential  elections,  the  President  has  been  elected  by  a 
plurality  varying  from  seven  thousand  plus  to  little  over  two 
million  and  a  half,  the  thought  naturally  arises  that  three 
million  government  employes  would  absolutely  control  the 
government  of  our  political  machinery,  the  tendency  being 
more  pa}^,  less  service  in  govei'nnient  employment  resulting 
in  resistless  efforts  on  the  part  of  outside  labor  to  secure 
government  employment. 

19.  Questions  to  be  asked. — All  in  all,  there  are  dis- 
tinct limitations  to  the  value  of  government  manage- 
ment, from  the  standpoint  of  the  public,  from  tlie 
standpoint  of  the  consumer  and  from  the  standpoint 
of  the  wage-earner.  Altho  public  ownersliip  is  not 
solely  an  economic  question,  in  the  main  it  is  a  business 


258        BUSINESS  AND  THE  GOVERNMENT 

proposition  which  must  be  justfied  by  its  economic 
results.  Even  the  economic  results  of  the  parcel  post 
in  the  United  States  are  still  not  clear  and  are  at  pres- 
ent the  subject  of  controversy,  while,  judging  from 
the  results  obtained  in  other  countries  with  state- 
owned  telegraphs  and  telephones,  it  would  seem  as  if 
in  these  particular  fields  we  need  exceedingly  careful 
study  before  going  further.  At  least,  for  our  own 
w^elfare,  we  should  thoroly  examine  many  questions 
before  further  ste2)s  are  taken  in  putting  additional 
industries  under  j)ost  office  management. 

Will  the  extension  of  such  power  give  more  oppor- 
tunity for  public  corruption  and  more  abuses  rather 
than  fewer?  What  will  be  the  political  effect  of  a 
greatly  increased  number  of  civil  service  employes? 
Will  the  extension  of  power  result  in  a  bureaucracy, 
and  will  it  prove  injurious  to  the  progress  of  our  coun- 
try? Will  rate-making  be  determined  by  ignorance 
and  political  pressure  ratlier  than  by  expert  knowl- 
edge? Will  the  public  pay  for  inefficient  manage- 
ment and  deficits  in  unjust  taxation  of  the  non-using 
public  and  thru  injury  to  the  public  credit?  The  con- 
sumer is  interested  in  knowing  whether  government 
management  will  mean  better  service,  or  poorer,  un- 
jjrogressive  and  dearer  service,  while  the  wage-earners, 
especially  the  self-reliant  and  well-trained,  ask 
whether  their  chances  for  promotion  will  be  fewer  or 
more? 

20.  The  public  must  he  sure  of  facts. — If  the  gov- 
ernment is  to  extend  its  management  we  must  be  sure 


PUBLIC  MANAGEMENT  259 

of  our  facts,  in  order  that  our  guiding  principles  may 
be  sound.  Of  course,  in  war  times  sudden  and  impe- 
rious needs  required  quick  action;  we  could  not  wait 
for  the  slow  process  of  economic  law  to  work  a  rem- 
edy. Legislation,  however,  of  this  war-time  character 
]Dassed  solely  for  immediate  results  tends  to  commit  a 
countr}^  to  policies  which  later,  thru  inertia  and  politi- 
cal influences,  may  be  difficult,  almost  impossible  to 
alter.  In  peace  times  there  should  be  no  undertaking 
of  new  activities  on  the  part  of  the  government  with- 
out careful  consideration  of  the  principles  upon  which 
it  is  acting  and  without  accurate,  definite  knowledge 
of  the  facts  by  which  it  should  be  guided. 

21.  A  remedi/  to  be  sparingJij  applied. — In  general 
it  may  be  said  that  government  management  is  a  rem- 
edy to  be  applied  only  after  the  means  of  adequate 
government  control  are  found  to  be  neither  workable 
nor  available.  Government  management  is  a  policy 
to  be  applied  in  a  limited  way,  and  then  only  after  due 
consideration  has  been  given  to  other  remedies.  It 
may  be  true  that  the  special  character  of  an  industry 
or  the  peculiar  circumstances  under  which  it  is  carried 
on,  involving  large  political,  social  and  ethical  ques- 
tions, may  override  the  disadvantages  of  government 
management.  The  Government,  however,  with  its 
multitudinous  activities,  has  a  tremendous  task  ahead 
of  it  to  work  out  princi})les  of  administrati\'e  efficiency 
and  to  perfect  existing  methods  ol"  control  and  regula- 
tion. It  seems,  therefore,  that  a  general  policy  of 
government  management  would  only  add  to  these  dif- 


260         BUSINESS  AND  THE  GOVERNMENT 

ficulties,  and  would  result  in  the  loss  of  national  indus- 
trial efficiency,  bringing  no  real  return  to  the  wage- 
earner  and  a  loss  to  the  consumer.  If  either  or  both 
profit,  it  will  generally  be  at  the  direct  and  unjust 
expense  of  the  taxpayer.  These  conclusions  drawn 
from  general  economic  and  political  principles  and 
from  the  illustrations  already  cited  of  the  experiences 
in  this  country  and  abroad  seem  to  have  received  a 
really  tragical  support  in  the  late  experiences  of  Rus- 
sia where  complete  governmental  management  in  the 
hands  of  the  unskilled  has  resulted  in  direct  disaster. 

22.  Fundamental  principle  is  public  welfare. — The 
fundamental  principle  to  keep  in  mind  is  the  promo- 
tion of  public  welfare.  Every  country  needs  to  be 
studied  by  itself.  In  making  comparisons  between 
the  experiences  of  different  countries  we  should  be 
careful  to  take  into  account  all  determining  factors — 
a  practice  that  has  by  no  means  been  followed.  In 
our  country,  we  may  practically  ignore  the  military 
aspect  of  the  question.  The  political  viewpoint  is 
largely  a  matter  of  party  policy,  while,  regarding  the 
social,  financial  and  economic  aspects,  there  have  been 
very  decided  differences  of  opinion.  The  arguments 
on  neither  side  have  rarely,  if  ever,  been  worked  out 
carefully  and  without  prejudice.  Judge  Elbert  H. 
Gary  states  the  issue  well : 

The  guiding  principle  of  the  day  should  not  be :  "Let  us 
be  prosperous"  but  rather  the  broader  one,  "Let  there  be 
light."  The  rulc-of-thunib  days  are  passing.  It  is  pre- 
eminently necessary  for  the  people  to  be  rid  of  panaceas  and 


PUBLIC  MANAGEMENT  261 

propogandists,  of  political  theorists  and  demagogues,  and 
to  return  once  more  to  the  simple  facts  as  they  are  developed 
by  experience.  Let  us  emphasize  these  basic  truths,  and  the 
judgment  of  the  average  thinking  man  may  be  relied  upon 
to  evolve  the  principles  of  action  which  are  essential  to  the 
prosperity  and  happiness,  if  not  to  the  very  existence,  of  the 
nation. 

REVIEW 

Under  what  circumstances  should  government  industries  be  run 
for  profit? 

Should  the  government  retain  absolute  control  of  all  natural 
resources,  or  would  this  be  an  unwise  restriction  on  development? 

What  is  the  comparative  relation,  if  any,  between  telephone 
and  telegraph  companies  ? 

Arrange  in  order  the  difficulties  which  a  state  would  have  in 
undertaking  the  management  of  (1)  The  United  States  Steel 
Corporation,  (2)  Wireless  telegraphy,  (3)  The  International 
Mercantile  Marine,   (4)   the  long  distance  telephones. 

If  the  balance  of  power  of  the  Federal  electorate  were  in  the 
Federal  service,  how  could  they  be  prevented  from  getting  what 
they  demanded  in  wages  and  conditions  of  labor? 

Why  do  private  plants  have  better  accounting  systems  than 
public  departments  ? 

Expain  the  lessons  learned  regarding  Government  management 
thru  our  experience  with  the  railways,  telegraphs  and  tele- 
phones during  the  time  of  war. 


CHAPTER  XIII 

THE  GREAT  WAR:  ITS  EFFECTS,  ITS  INFLUENCE, 
ITS  LESSONS 

1.  War  cuts  deep  into  economic  life. — Xo  great  up- 
heaval in  human  affairs  such  as  the  Great  World  War 
can  pass  into  history  without  leaving  its  impress  deep 
in  the  institutions  and  in  the  character  of  every  nation 
that  participated  in  it.  To  meet  the  emergency  of 
the  war,  our  people  created  new  institutions,  some 
of  which  have  left  a  lasting  impression  upon  our 
form  of  government.  The  changes  in  our  political 
and  social  habits  were  so  marked  for  a  considerable 
period  of  time  that  they  have  doubtless  affected  to  a 
greater  or  less  degree  our  national  character,  while  the 
strain  upon  the  thoughts  and  emotions  of  our  people, 
both  of  exultation  and  despair,  was  so  extreme  that  the 
results  will  doubtless  continue  to  be  felt  and  mani- 
fested for  years  to  come. 

2.  War  preparations. — Even  before  our  countiy 
was  drawn  into  the  vortex  of  the  war,  in  the  presence 
of  threatened  danger,  our  government,  at  the  sugges- 
tion of  some  of  our  eminent,  patriotic  citizens,  had 
made  provision  for  a  most  careful  survey  of  our  na- 
tional resources  with  reference  to  the  extent  to  which 
and  the  methods  by  which  our  industries  might  assist 

262 


THE  GREAT  WAR  263 

our  government  in  case  the  dread  event  of  war  should 
be  forced  upon  us.  As  early  as  August  29,  1916, 
Congress  established  the  Council  of  National  Defense 
together  with  the  Advisor}^  Commission  to  cooperate 
with  it.  The  Council  was  purely  ex  officio,  composed 
of  the  Secretaries  of  War,  Navy,  Interior,  Agricul- 
ture, Commerce,  and  Labor.  Feeling  the  need,  how- 
ever, of  the  cooperation  of  men  of  marked  ability  along 
scientific  and  business  lines,  Congress  decided  that  the 
Advisory  Commission  should  consist  of  distinguished 
persons  "each  of  whom  shall  have  special  knowledge 
of  some  industry,  public  utility,  or  the  development  of 
some  natural  resource,  or  otherwise  be  specially  quali- 
fied in  the  opinion  of  the  Council  for  the  perform- 
ance of  the  duties  hereinafter  provided."  On  this 
commission  were  represented  railroads,  manufactur- 
ers, bankers,  merchants,  labor  men,  physicians  and 
teachers. 

In  addition  to  this  commission  and  in  many  in- 
stances for  cooperation  with  it  were  created  from  time 
to  time  other  non-ex  officio  committees  or  bodies  which 
might  bring  to  the  assistance  of  the  Council  of  Na- 
tional Defense  and  the  President  all  the  expert  knowl- 
edge in  the  various  fields  of  scientific,  professional  and 
business  activity  that  might  be  contributory  to  the 
most  successful  prosecution  of  the  war.  Such  bodies 
were  the  National  Research  Council,  cooperating  in 
matters  pertaining  to  scientific  research;  special  com- 
mittees made  up  of  leading  scientists  and  business 
men,  under  the  chairmanship  of  one  of  the  members 


264        BUSINESS  AND  THE  GOVERNMENT 

of  the  Advisory  Commission.  There  were,  for  exam- 
ple, committees  on  women's  defense  work,  on  highway 
transportation,  on  labor,  on  medical  and  sanitary 
measures,  on  accounting,  and  on  other  subjects. 

3.  Economic  control  horn  of  war  conditions. — As 
the  war  continued  and  the  burdens  and  responsibilities 
of  the  government  increased  by  leaps  and  bounds, 
other  organizations  were  created,  such  as  the  War  In- 
dustries Board  under  the  chairmanship  of  a  member  of 
the  Advisory  Commission,  to  studj^  all  materials  and 
manufactured  products  with  reference  to  determining 
prices  of  goods  that  might  need  to  be  purchased  for 
governmental  use ;  to  guide  and  assist  in  the  allocation 
of  contracts,  in  the  disclosure  of  sources  of  supply,  and 
related  matters;  to  decide  as  to  priority  of  needs  or 
deliveries  of  various  types  of  supplies,  and  other  sim- 
ilar duties,  "in  order  that  as  definite  an  outlook  and 
opportunity  for  planning  as  possible  may  be  afforded 
the  business  men  of  the  country."  The  Aircraft 
Board  and  an  Advisory  Commission  for  Aeronautics 
were  created  to  care  for  that  branch  of  industry.  The 
Shipping  Board  and  later  the  Emergency  Fleet  Cor- 
poration were  established  in  order  that  the  imperative 
need  of  a  rapid  increase  in  ships  of  all  types  and  char- 
acter for  the  transportation  of  merchandise  and  for 
fighting  purposes  might  be  met  as  soon  as  possible. 
The  War  Trade  Board  was  created  to  enforce  the  pro- 
visions of  the  Trading  with  the  Enemy  Law  and  in 
part  of  the  Espionage  Law. 

The  failure  of  the  railroads  to  meet  the  needs  of  the 


THE  GREAT  WAR  265 

war,  and  the  imperative  need  to  secure  a^  rapidly  as 
possible  united  action  in  order  to  provide  supplies, 
led  to  the  taking  over  by  the  government  of  all  the 
railroads,  which  were  placed  under  the  control  of 
William  G.  McAdoo,  Secretary  of  the  Treasury,  as 
Director-General  of  Railroads. 

In  order  to  meet  the  unprecedented  financial  de- 
mands of  the  war,  there  was  created  the  War  Finance 
Corporation,  consisting  of  the  Secretary  of  the  Treas- 
ury and  four  other  persons,  to  make  provision  for 
loans  and  to  advance  capital  to  such  organizations  and 
individuals  as  were  engaged  in  necessary  war  indus- 
tries. Following  this  came  the  Capital  Issues  Com- 
mittee to  investigate  and  determine  whether  and  to 
what  extent  securities  should  be  issued  for  similar 
purposes.  As  more  and  more  of  our  producers  were 
withdrawn  from  active  business  in  order  to  go  by  the 
millions  to  fight  the  battles  of  our  countiy,  and  as  the 
imperative  need  of  furnishing  food  and  clothing  both 
to  our  own  soldiers  and  to  the  soldiers  and  citizens  of 
our  Allies  abroad  increased,  the  scarcity  of  food  and 
supplies  became  so  great  that  the  necessity  of  con- 
trolling not  only  unscrupidous  profiteers  but  also  the 
thoughtless  expenditures  and  habits  of  well-meaning 
individuals  became  imperative.  The  government 
therefore  established  the  Food  Administration  and  the 
Fuel  Administration  in  order  that  the  needs  for  the 
war  might  be  given  precedence  over  private  desires. 

All  these  and  other  minor  organizations,  new  to  our 
form  of  government  tho  called  into  being  to  meet  an 


266        BUSINESS  AND  THE  GOVERNMENT 

emergency,  could  not  fail  to  have  a  profound  influence 
upon  the  business  and  personal  habits  of  the  entire 
population  of  the  United  States,  and  naturally  will 
continue  to  have  in  many  respects  a  permanent  influ- 
ence upon  our  country.  In  consequence,  as  we  are 
adjusting  our  institutions  and  our  business  habits 
again  to  times  of  peace  and  as  we  must  look  forward 
to  establishing  for  the  future  methods  of  business  and 
forms  of  organization  that  are  suited  to  permanent 
conditions,  it  is  desirable  that  we  note  as  carefully  as 
may  be  what  the  effect  and  the  influence  of  these  or- 
ganizations and  their  work,  as  well  as  the  international 
and  local  influences  of  the  war  itself,  have  been  and 
what  lessons  of  permanent  value  may  be  learned  from 
their  activities. 

4.  The  United  States  becomes  a  creditor  nation. — 
Possibly  the  most  clearly  apparent  important  result 
of  the  war  which  in  itself  exerts  a  great  influence  in 
many  directions  both  here  and  abroad  is  the  change  of 
the  United  States  from  a  debtor  nation  with  annual 
payments  abroad,  in  round  numbers  of  $500,000,000, 
to  a  creditor  nation  entitled  to  receive  from  abroad  in 
interest  alone  substantially  the  same  sum.  This  dif- 
ference in  status  of  about  $1,000,000,000  a  year  is  in 
itself  of  great  significance,  but  the  indirect  influences 
are  possibly  of  even  greater  importance.  Our  chief 
creditors  are  our  former  Allies  in  the  war,  with  the 
exception  of  Japan.  France  and  England,  instead  of 
receiving  from  us  goods  or  gold  to  the  extent  of  hun- 
dreds of  millions  of  dollars,  must  send  many  millions 


THE  GREAT  WAH  267 

to  us  each  year  in  payment  of  interest  and  eventually 
of  principal.  International  payments  in  the  long  run 
are  made  by  exports  of  goods  or  by  the  offsetting  of 
debts  owed  elsewhere.  The  war  has  left  these  Euro- 
pean countries  crippled.  It  is  impossible  for  the 
present  for  them  to  send  out  exports  to  the  peace-time 
extent;  indeed  in  many  lines  exports  will  not 
begin  until  the  proper  machinery  for  manufacturing 
can  be  bought  and  installed.  How  can  these  comi- 
tries,  and  even  more  Italy  and  the  countries  allied 
with  the  Central  Powers,  create  these  exports  to  meet 
the  demands? 

Our  government,  in  order  to  favor  its  former  Allies 
and  to  help  them  overcome  their  difficulties  has  per- 
mitted postponement  of  the  payment  of  interest  for 
the  present,  but  private  individuals  and  corporations 
engaged  in  business  can  hardly  manage  affairs  on  so 
generous  a  basis.  Credit  can  be  given  and  arrange- 
ments are  continually  being  made  by  which  our  ex- 
porters and  merchants  are  sending  their  goods  abroad 
on  credit  and  for  a  longer  time  than  was  the  custom  be- 
fore the  war.  Our  people,  however,  cannot  continue 
indefinitely  to  extend  these  credits,  although  it  is  de- 
sirable if  we  are  to  get  the  benefits  of  a  rapid  recupera- 
tion on  the  part  of  our  former  Allies,  to  be  lenient  and 
as  helpful  as  possible. 

The  fact  that  the  balance  of  trade  is  normally  in 
our  favor  would  tend  under  normal  conditions  to  bring 
gold  to  this  country,  if  the  supply  of  goods  were 
checked ;  but  under  present  conditions,  with  no  gold  to 


268        BUSINESS  AND  THE  GOVERNMENT 

spare  and  with  most  of  the  countries  on  a  paper  basis, 
gold  is  no  longer  in  trade  at  anything  like  a  moderate 
rate,  so  that  it  is  impossible  for  gold,  except  in  negli- 
gible quantities,  to  be  shipped  hither  to  pay  for  goods. 
5.  American  j)U7'chase  of  foreign  enterprises  desir- 
able.— To  the  advantage  of  both  European  countries 
and  ourselves,  perhaps  even  more  to  the  benefit  of  less 
well-developed  countries  such  as  South  Africa  or 
China  or  some  of  the  Latin- American  countries  need- 
ing machinery  for  the  establishment  of  productive 
plants  of  all  kinds  and  having  as  yet  relatively  little 
in  the  way  of  exports  that  would  meet  our  needs,  we 
might  invest  our  capital  in  those  countries  by  either 
the  purchase  of  existing  plants  or  building  new  plants 
adapted  to  the  manufacture  of  goods  of  various  kinds 
suitable  either  for  home  consumption  or  for  export  to 
America.  There  would  be  great  advantage  not  only 
to  us  but  also  to  the  countries  in  question  if  this  plan 
were  followed.  It  would  help  stabilize  the  rates  of 
exchange.  We  should  be  more  sure  of  liberal  re- 
turns on  our  capital  if  we  made  the  investments  and 
managed  the  business  ourselves  than  if  we  took  the 
bonds  or  stocks  of  native-owned  and  managed  estab- 
lishments of  the  countries  in  questions.  Moreover, 
the  profits  made  in  such  establishments  would  nor- 
mally be  reinvested  in  the  country  itself  thru  in- 
creasing the  size  of  the  plants  already  owned  by  us 
or  by  the  establishment  of  new  enterprises  there. 
Doubtless  in  many  instances  European  nations  would 
hesitate  to  sell  their  important  lines  of  business  to  a 


THE  GREAT  WAR  269 

foreign  country  like  the  United  States,  but  it  would 
be  better  for  the  backward  foreign  countries,  in  many 
cases,  to  get  the  benefit  of  not  only  the  capital  but  also 
of  the  manufacturing  and  industrial  skill  that  Ameri- 
cans would  employ  in  promoting  their  investments. 
JNIoreover,  the  profits  also  being  left  in  the  foreign 
country  would  not  call  for  the  exportation  of  goods 
to  pay  for  these  investments.  That  would  take  care 
of  itself  without  having  any  direct,  immediate  effect 
upon  the  business  concerned. 

This  demand  on  the  part  of  foreign  countries  for 
our  goods,  at  as  low  rates  as  possible  on  account  of 
their  present  lack  of  means  and  our  urgent  need  to 
free  our  own  market  and  establish  a  more  favorable 
rate  of  exchange  by  selling  our  goods  abroad,  should 
have  the  effect  of  reducing  the  prices  of  our  manufac- 
tured goods  here  in  order  that  they  may  open  up  and 
develoj)  good  markets  for  us  abroad.  If  they  are  to 
develop  these  markets  rapidly  our  business  men  must 
make  and  sell  their  products  for  export  as  cheaply  as 
they  can  while  maintaining  their  standards  of  qualit}^ 
It  will  pay  them  better  to  extend  their  trade  thru 
the  policy  of  low  prices  and  small  profits  than  to  re- 
strict their  trade  even  tho  the  sale  of  individual  arti- 
cles miglit  be  made  at  higher  prices. 

6.  "'Inflated  prices  and  credits. — One  need  not  argue 
the  fact  of  inflated  prices  and  credits  during  the  period 
of  the  war  and  after.  The  experience  is  too  recent 
and  too  vivid  for  that.  It  may  be  worth  wliile,  how- 
ever, to  glance  at  the  causes  of  these  conditions,  for 

XXlV— 19 


270        BUSINESS  AND  THE  GOVERNMENT 

thru  knowledge  of  the  cause  may  be  found  the  remedy 
for  an  undoubted  evil. 

Probably  the  first  and  most  prominent  cause  is  the 
large  increase  in  the  supply  of  gold  in  this  countrj^ 
which  has  its  influence  upon  our  basic  monetary  sup- 
ply. For  a  little  while  before  the  outbreak  of  the 
war  Germany  had  been  accumulating  gold  in  her 
vaults.  Doubtless  her  government  had  been  antici- 
pating war,  But  the  countries  of  the  Allies,  surprised 
and  taken  at  a  disadvantage,  needed  war  supplies  of 
all  kinds  as  rapidly  as  possible.  Their  quickest  way 
to  secure  them  was  to  begin  their  manufacture  and  to 
buy  immediately  and  in  as  large  quantities  as  possible 
from  the  United  States.  This  buying  demanded  cash 
or  short  time  credits.  The  shipment  of  our  goods 
abroad  in  so  much  larger  quantities  than  we  were  im- 
porting naturally  soon  began  to  drain  the  European 
countries  of  their  gold  in  order  that  they  might  pay  for 
the  goods  they  had  bought  from  us.  The  balance  of 
trade,  which,  as  has  been  explained,  had  run  for  years, 
some  hundreds  of  millions  of  dollars  against  us,  turned 
immediately  in  our  favor,  so  that  we  were  receiving 
gold;  and  with  the  expansion  of  our  gold  supply  the 
normal  tendency  was  for  gold  as  compared  with  goods 
to  become  cheaper  and  in  consequence  for  our  prices 
to  rise. 

Again,  owing  to  the  reorganization  of  our  banking 
system,  especially  the  lower  legal  reserve  requirements 
of  our  Federal  Reserve  Banks,  the  amount  of  gold 
that  we  had  went  farther  than  before  in  its  employ- 


THE  GREAT  WAR  271 

ment  as  a  basis  for  the  issuance  of  bank  notes,  giving 
an  opportunity  for  a  large  increase  in  our  monetary 
supply  with  a  consequent  tendency  toward  a  rise  in 
prices.  From  these  causes  alone  there  might  well 
have  been  an  expansion  amounting  to  $5,000,000,000 
or  $6,000,000,000.  The  substitution  of  Federal  Re- 
serve Bank  gold  notes  for  our  gold  certificates  re- 
leased enough  gold  to  permit  an  expansion  still  fur- 
ther of  possibly  $1,500,000,000. 

One  might  go  on  with  minor  causes  for  high  prices 
such  as  the  increased  use  of  acceptances  tending  to 
make  the  use  of  gold  more  effective,  the  urgings  of  the 
government  toward  the  purchase  of  liberty  bonds  and 
its  insistence  upon  their  being  received  as  collateral 
for  loans,  which  tended  toward  an  abnormal  expan- 
sion of  credit.  All  these  indirect  influences  were  felt 
toward  pushing  prices  higher  and  increasing  thereby 
the  cost  of  living.  Practically  all  of  these  phenomena 
were  the  result,  direct  or  indirect,  of  the  war.  In  the 
fall  of  1920  we  found  ourselves  in  a  period  of  ab- 
normally high  cost  of  living  with  problems  facing  us 
that  came  from  a  depression  of  business  which  seemed 
likely  to  last  for  months,  if  not  for  years.  With  the 
falling  prices  debtors  found  it  more  difficult  to  meet 
their  obligations,  banks  felt  compelled  to  restrict 
credits,  manufacturing  establishments,  lessening  their 
output,  were  compelled  to  discharge  their  workmen, 
and  the  pressure  upon  business  and  the  standard  of 
living  became  more  marked.  The  remedy  for  the  pre- 
vious expansion  had  to  be  found  in  contraction.     By 


272        BUSINESS  AND  THE  GOVERNMENT 

wise  consideration,  banks  and  creditors  may  perhaps 
ease  somewhat  the  difficulties  in  such  circumstances, 
but  the  only  permanent  remedy  is  to  live  within  our 
means  whatever  the  cost,  to  put  our  business  on  a  pay- 
ing basis  even  tho  to  do  so  we  must  sacrifice  heavily  in 
size  and  output,  and  then  when  the  period  of  liquida- 
tion is  over,  to  build  sanely  and  safely  upon  the  newly 
laid  firm  foundation. 

7.  Profiteeriiig. — The  imperative  needs  of  the  war 
called  for  large  quantities  of  supplies  of  many  types. 
The  quantity  of  goods  had  to  be  furnished.  The  ques- 
tion of  price  was  secondary.  Unscrupulous  men  nat- 
urally took  advantage  of  these  conditions  whether 
dealing  with  the  government  or  with  private  individ- 
uals. Conscientious  men  whose  skill  and  organization 
enabled  them  to  produce  at  less  than  average  cost 
naturally  made  large  profits  while  selling  at  the  aver- 
age prices.  High  taxes  levied  by  the  government  to 
meet  its  extraordinary  needs  furnished  likewise  an  ex- 
cuse for  many  of  these  increases.  People,  not  knowing 
what  demands  the  government  might  make  or  how 
those  demands  might  be  increased  as  time  went  on, 
felt  impelled  to  protect  themselves  by  increasing  their 
prices  enough  to  be  isure  to  cover  these  possible  if  not 
probable  taxes.  Each  step  in  the  scale  of  production, 
from  the  basic  raw  materials  through  the  various  proc- 
esses of  manufacture  to  the  finished  product,  naturally 
led  to  a  greater  increase,  mitil  the  final  consumer  was 
carrying  the  burdens  of  all  the  various  parties  tliruout 
the  whole  process  of  production.     There  can  be  no 


THE  GREAT  WAR  273 

doubt  that  this  profiteering  is  primarily  a  war  product 
and  that  with  the  disappearance  of  the  abnormal  stim- 
ulus to  production  and  the  former  recklessness  re- 
garding prices,  the  evils  are  largely  curing  themselves. 
8.  Labor. — Another  important  factor  in  producing 
the  new  conditions  which  is  certain  to  be  a  matter  for 
serious  consideration  for  some  years  to  come  is  tlie 
changed  attitude  of  working  men  toward  their  em- 
ployers. As  the  Government  was  demanding  quan- 
tity and  in  certain  lines  was  very  exacting  regarding 
quality  but  raised  few  questions  regarding  prices,  it 
was  natural  that  manufacturers  and  others  supplying 
government  needs  should  have  been  ready  to  pay  lib- 
eral rates  of  wages.  Indeed  so  abnomial  was  the 
demand  that  in  many  cases  employers  found  them- 
selves bidding  against  each  other  for  men,  until  wages 
in  many  lines  were  more  than  doubled  within  a  com- 
paratively short  period,  sometimes  even  tripled. 
The  laborer  naturally  took  advantage  of  the  condi- 
tions. To  a  very  considerable  degree,  j^robably  in- 
deed in  a  large  majority  of  the  cases,  his  act  was  fully 
justified,  for  the  cost  of  living  had  so  increased  that 
without  a  corresponding  increase  in  his  wages  his 
standards  of  living  must  have  materially  fallen.  The 
enormous  demand  for  all  types  of  labor  had  naturally 
increased  the  power  of  the  trade  unions.  It  will  be 
recalled  that  the  railroad  brotherlioods,  taking  advan- 
tage of  the  situation,  had  threatened  j^ractically  to 
suspend  traffic  by  strikes  on  all  of  our  railroads,  and 
with  the  sympathetic  approval  of  President  Wilson 


274.        BUSINESS  AND  THE  GOVERNMENT-- 

had  imposed  upon  Congress  the  passage  of  the 
Adamson  law  giving  to  them  an  eight-hour  basic 
day  as  well  as  a  large  increase  in  wages.  As  the 
effect  of  the  war  strengthened,  and  especially  after  the 
United  States  entered  the  war,  the  American  Federa- 
tion of  Labor  under  the  leadership  of  jNIr.  Gompers 
played  a  noteworthy  part.  Mr.  Gompers  and  the 
other  leaders  of  the  Federation  took  a  most  loyal  stand 
toward  helping  our  government  procure  its  supplies, 
by  urging  faithful  work  and  an  earnest  effort  to  in- 
crease output;  but  realizing  also  their  position  they 
naturally  demanded  and  secured  high  wages,  good 
labor  conditions,  and  especially,  in  many  instances,  the 
distinct  formal  recognition  of  their  unions  and  of  their 
leaders  as  parties  to  collective  bargaining.  President 
Wilson  and  Secretary  Baker  were  especially  sympa- 
thetic with  the  leaders  of  the  Federation  in  its  nego- 
tiations, but  also  the  Secretary  of  Labor  and  the 
Government  in  general  strengthened  their  hands. 

In  connection  with  the  work  of  the  United  States 
Shipping  Board  Emergency  Fleet  Corporation,  as 
well  as  the  Aircraft  Board  and  war  activities  ir  gen- 
eral, there  were  numerous  strikes  and  threats  of 
strikes.  To  lessen  as  far  as  possible  the  risks  and  dan- 
gers of  such  a  condition,  the  government  established 
various  boards  of  arbitration  which  ultimately  resulted 
in  the  War  Labor  Board,  whose  chief  function  was  to 
hear  complaints  and  settle  disputes  of  all  kinds  arising 
between  the  government  and  contractors  employed  on 
government  work  and  their  laborers.     Rules  of  action 


THE  GREAT  WAR  275 

and  standard  conditions  of  work  were  formulated  and 
a  considerable  degree  of  success  was  attained  in  pre- 
venting the  stoppage  of  work.  The  War  Labor  Pol- 
icies Board  was  also  created  to  attempt  to  unify  the 
policies  of  the  various  departments  of  the  government 
and  thus  secure  a  uniformity  of  action  that  would 
lessen  risks. 

At  the  close  of  the  war,  therefore,  and  for  months 
thereafter  as  the  demand  for  labor  continued,  the  situ- 
ation was  probably  the  most  favorable  to  workmen 
and  workwomen  of  all  classes  and  especially  perhaps 
to  the  trade  unions  that  has  been  known  in  the  history 
of  this  country.  Eventually,  however,  it  became  evi- 
dent that  the  peak  of  influence  of  the  working  men  and 
of  the  unions  had  been  reached  and  passed.  At  about 
the  same  time  the  radical  element  in  the  unions  as  well 
as  the  sentimentalists  and  the  radicals  outside  of  the 
ranks  of  the  unions — the  Socialists,  the  Bolshevists, 
and  others — began  pushing  their  demands  to  an  extent 
heretofore  unknown.  As  was  natural  under  the  cir- 
cumstances, these  extreme  demands  were  overdone 
and  pushed  too  hard.  Against  the  advice  of  the  more 
consen'ative  of  the  labor  leaders,  the  great  steel  strike 
was  called,  afterward  the  coal  strike,  followed  later  by 
the  so-called  "outlaw"  strikes  in  connection  with  the 
railways  and  other  lines  of  industry — that  is  strikes 
by  a  relative  few  of  the  union  men  against  the  advice 
of  the  national  leaders  and  sometimes  contrary  to  the 
regulations  of  tlie  unions  themselves.  Public  sym- 
pathy, which  had  been  with  the  labor  men,  especially 


276        BUSINESS  AND  THE  GOVERNMENT 

the  more  loyal  ones,  thruout  the  war,  turned,  and 
many  of  our  citizens  who  had  been  supporting  the 
wage-earners  in  their  contentions  felt  that  they  were 
becoming  unreasonable  and  that  it  Avas  time  that  con- 
ditions should  force  them  to  recognize  the  fact  that 
they  are  but  one  factor,  altho  an  extremely  impor- 
tant one,  in  the  production  of  wealth,  and  that  they  on 
their  part  must  cooperate  in  the  spirit  in  which  they 
had  been  demanding  cooperation  on  the  part  of  the 
employers  during  the  period  of  their  own  greatest 
advantage. 

9.  Industrial  changes. — In  summing  up,  therefore, 
this  result  of  the  war  and  the  influences  and  conditions 
which  are  likely  to  remain  as  a  permanent  result  of  the 
war  conditions,  we  find  that  the  eight-hour  basic  day 
is  and  will  doubtless  remain  the  custom  and  tlie  basis 
for  wages  to  a  far  greater  degree  in  this  country  than 
ever  before. 

The  principle  of  collective  bargaining  between  em- 
ployers and  employes,  either  with  representatives  of 
the  trade  unions  or  with  chosen  representatives  of 
workmen  in  the  establishments  interested — shop  com- 
mittees or  representatives  in  some  other  form — will  be 
emploj-ed  with  increasing  frequency. 

Before  the  close  of  the  war  much  had  been  said  in 
Great  Britain  and  in  this  country  of  the  desirability 
of  greater  personal  cooperation  between  employers 
and  workmen  in  the  process  and  management  of  busi- 
ness. In  England  the  Whitley  committees,  and  both 
there  and  elsewhere  other  forms  of  shop  committees 


THE  GREAT  WAR  277 

had  undertaken  such  cooperation.  After  the  close  of 
the  war  many  social  reformers  and  some  scientific 
business  experts  endeavored  to  work  out  plans  by 
which  workmen  might  participate  in  the  management 
of  business,  especially  in  the  lines  in  which  their  knowl- 
edge would  be  of  direct  value,  to  so  great  an  extent 
that  one  might  properly  speak  of  a  democratic  man- 
agement of  the  establishment.  Doubtless  under  vary- 
ing forms  and  as  time  goes  on,  with  a  greater  readiness 
of  adjustment  of  the  form  of  cooperation  to  the  con- 
ditions of  the  establishment,  this  idea  of  cooperation 
in  industry  will  be  retained  and  extended. 

Connected  with  cooperation  in  management,  there 
will  also  doubtless  go  thru  the  purchase  of  shares  of 
stock,  thi-u  profit-sharing,  and  other  devices,  a  consid- 
erable degree  of  cooperation  of  the  workmen  in  the 
ownership  of  the  establishments  in  which  they  w^ork  as 
well  as  cooperative  establishments  where  the  workmen 
are  practically  the  sole  owners.  Largely  this  move- 
ment, which  will  be  a  permanent  one,  has  been  an  out- 
come of  the  war. 

10.  Rmhca?/s. — Especially  noteworthy  have  been 
the  experiences  of  our  country  with  tlie  railways. 
Owing  to  the  great  congestion  of  traffic  and  tlie  im- 
perative need  of  cooperation  on  the  part  of  all  railroad 
transportation  agencies,  a  unification  of  all  railroads 
was  made  under  the  direct  control  of  tlie  government, 
with  Mr.  AVilliam  G.  ^NlciVdoo,  Secretary  of  the 
Treasuiy,  as  Director-General  of  Railroads.  It  is 
an  interesting  fact  tliat  the  first  order  of  tlie  Director- 


278        BUSINESS  AND  THE  GOVERNMENT 

General  cleared  away  all  the  legal  restrictions  prevent- 
ing pooling,  common  use  of  railroads  and  terminals 
and  practically  established  all  the  railways  of  the 
United  States  as  one  system,  an  act  in  line  with  many 
of  the  recommendations  of  the  Interstate  Commerce 
Commission  and  all  railway  managers  for  a  genera- 
tion, but  directly  opposed  to  the  anti-pooling  clauses 
of  the  Interstate  Commerce  Act  and  the  repeated  and 
continuous  attempts  to  force  competition  among  rail- 
ways contrary  to  the  opinions  of  practically  all  thoro 
students  of  the  subject. 

Authority  was  given  to  standardize  the  rates  thru- 
out  the  country,  the  government  guaranteeing  the 
stockholders  a  fixed  and  really  reasonable  return  on 
their  investments.  The  equipment  was  standardized 
to  a  greater  degree  than  ever  before. 

Of  possibly  even  greater  significance  was  the  pri- 
ority of  shipments  given  to  the  products  of  the  indus- 
tries most  essential  to  carrying  on  the  war.  The 
President  and  the  Government  insisted  that  there  be 
no  strikes,  the  railway  workmen  being  government 
employes,  but  that  questions  in  dispute,  whether  wages 
or  hours  of  labor  or  other  working  conditions,  be  re- 
ferred to  an  impartial  board  for  final  settlement. 

The  experiences  soon  showed  that  altho  much  had 
been  gained  along  some  of  the  lines  indicated,  in  other 
waj^s  much  had  been  lost.  The  effectiveness  of  some 
of  these  acts  was  more  than  offset  by  a  weakened 
morale  on  the  part  of  many  of  the  workmen,  by  the  re- 
sulting greatly  increased  cost,  met  out  of  the  United 


THE  GREAT  WAR  279 

States  Treasury,  of  much  of  the  work  and  by  the 
poorer  service  rendered  in  practically  all  directions. 

As  the  result  of  our  experiences,  however,  we  may 
expect  in  times  of  peace  some  effects  that  wull  be  per- 
manent. Under  the  Esch-Cummins  act  we  find  per- 
mitted a  much  greater  degree  of  consolidation  of  rail- 
roads and  unification  of  management  than  would  have 
been  possible  before  the  war.  Of  almost  if  not  quite 
equal  importance,  a  standard  has  been  established  for 
the  earnings  of  the  railroads  which  shall  serve  as  a 
])asis  and  guide  for  the  Interstate  Commerce  Com- 
mission in  determining  freight  and  passenger  rates. 

There  have  been  employed  and  will  doubtless  con- 
tinue to  be  employed  in  the  future  on  the  part  of  the 
railroads  under  certain  congested  conditions,  freight 
embargoes  involving  the  principle  of  priority  of  ship- 
ments for  most  needed  goods.  The  law  also  provides 
a  method  of  settling  disputes  between  the  railways  and 
their  employes  which  would  seem  to  be  modeled  after 
some  of  the  most  successful  plans  developed  during 
the  war.  Of  perhaps  prime  importance,  the  popular 
judgment  in  opposition  to  government  ownership, 
and  especially  to  the  government  management,  of  rail- 
roads seems  to  have  been  strengthened. 

11.  Food  and  fuel. — During  tlie  war  private  citi- 
zens probably  found  their  habits  of  living  more  af- 
fected by  the  government  control  of  food,  fuel  and  a 
few  other  necessities  of  life  than  l)y  any  other  of  the 
war  policies  aside  from  the  draft  and  control  of  sol- 
diers.    The  President  made  a  fortunate  selection  for 


284         BUSINESS  AND  THE  GOVERNMENT 

the  country  in  appointing  Hoover  as  Food  Adminis- 
trator. From  his  extended  experience  in  Belgium, 
England  and  the  rest  of  Europe  along  similar  lines, 
he  more  perhaps  than  any  other  of  our  government 
officials  knew  how  to  appeal  to  the  sentiments  and  at 
times  to  the  sense  of  humor  of  the  American  people  in 
ways  that  were  effective.  Similar  methods  were  fol- 
lowed in  part  by  the  Fuel  Administrator.  The  re- 
sults of  both  were  noteworthy  and  it  is  fair  to  say,  on 
the  whole,  unexpectedly  successful  in  many  directions. 
Some  permanent  results  may  be  mentioned.  "Hoov- 
er izing"  in  certain  forms  has  become  a  habit  with  many 
individuals.  Simpler  meals,  a  better  knowledge  of 
food  values,  better  selection  of  foods  as  regards  both 
expense  and  nourishing  qualities,  wiser  habits  of  eat- 
ing and  drinking  have  been  retained  by  many  and 
doubtless  will  continue  in  many  quarters. 

The  need  of  regulating  the  total  supplies  of  certain 
jDroducts  such  as  sugar,  vegetable  oils,  fats,  petroleum, 
rubber,  and  other  articles,  gave  to  the  public  a  far 
more  accurate  knowledge  and  habit  of  observation  re- 
garding the  sources  of  supply  and  the  quantities 
needed  of  many  of  these  necessities  than  had  ever 
existed  before. 

The  exigencies  of  the  war  strengthened  the  belief 
that  a  great  nation  like  ours  should  be  self-sufficient 
as  regards  the  prime  necessities.  We  see  in  conse- 
quence far  more  than  ever  before  discussions  regard- 
ing the  retention  under  American  ownership  in  botli 
this  country,  in  some  of  our  dependencies,  and  even 


THE  GREAT  WAR  281 

abroad,  of  a  sufficient  supply  of  raw  materials  to  meet 
our  needs  in  time  of  peace  as  well  as  in  time  of  war. 
This  influence  and  this  argument  are  bound  to  have 
their  effect  in  discussions  of  the  tariff  and  in  the  con- 
duct of  many  lines  of  business.  The  very  grave  need 
of  dyes,  of  materials  to  make  high  explosives,  and  of 
lubricating  oils,  as  well  as  of  food  supplies,  and  the 
sacrifices  that  we  were  called  upon  to  make  to  meet 
these  needs  have  so  impressed  themselves  upon  the 
American  people  that  some  of  the  measures  taken  will 
doubtless  be  adopted  as  a  permanent  policy. 

Along  similar  lines  were  the  acts  of  the  Fuel  Ad- 
ministrator looking  toward  the  conservation  of  coal, 
by  changing  the  working  hours  of  various  establish- 
ments, and  by  giving  definite  instructions  regarding 
the  best  methods  of  handling  fuel  so  as  to  secure  from 
it  the  best  heating  results.  The  study  of  different 
types  of  furnaces  as  well  as  of  different  kinds  of  fuel, 
and  the  more  intimate  knowledge  of  sources  of  supply 
of  all  of  these  materials  had  not  merely  immediate  but 
will  also  have  permanent  results. 

12.  Securing  popular  cooperation. — Nothing  was 
more  striking  perhaps  in  both  of  these  administrations 
than  the  confidence  with  which  appeals  were  made  to 
the  public  conscience  and  to  the  sense  of  patriotism  in 
order  to  produce  results.  Wlicreas  not  only  in  Ger- 
many and  France,  military  nations,  but  also  in  Great 
Britain,  regulations  with  heavy  penalties  were  estab- 
lished, and  people  bouglit  all  types  of  food  and  fuel 
only  on  presentation  of  tickets  issued  under  stringent 


^82        BUSINESS  AND  THE  GOVERNMENT 

regulations  of  government,  here  a  simple  appeal  to  the 
people  backed  up  by  a  loyalty  of  public  opinion 
brought  results  which  were  substantially  equal  to  those 
secured  by  laws  elsewhere.  Foreign  officials  and 
other  foreigners  visiting  this  country  expressed  pro- 
found surprise  and  astonishment  at  the  results  se- 
cured. They  would  not  have  believed  them  possible 
had  they  not  been  matters  of  personal,  observation. 
It  is  probable  that  in  this  again  we  have  learned  a 
lesson  that  in  times  of  emergency  of  even  lesser  strin- 
gency may  be  wisely  employed  in  the  future. 

Similar  to  this  governmental  method  was  that  em- 
ployed in  various  fields  of  activity  by  practically  all  of 
the  departments  of  government  in  connection  with 
voluntary  workers  either  in  organizations  or  as  indi- 
viduals. Our  War  Department  and  Xavy  Depart- 
ment worked  closely  in  cooperation  with  such  organ- 
izations as  the  Y.  ^I.  C.  A.,  the  Knights  of  Columbus, 
the  War  Camp  Community  Service,  the  Red  Cross 
and  others,  making  them  in  many  cases  official  organs 
of  the  government.  The  results  were  good  on  tlie 
whole.  Similar  measures  had  been  employed  on  a 
very  small  scale  before.  There  is  reason  to  believe 
that  as  a  result  of  the  war  such  cooperation  will  })e 
more  frequently  found  in  the  future  and  on  a  larger 
scale. 

Of  perhaps  still  greater  influence  and  one  of  more 
permanent  value  was  the  employment  of  individuals 
without  pay  in  important  positions  in  the  government 
service.     Attention  has  already  been  called  to  the  vol- 


THE  GREAT  WAR  283 

untary  labors  of  the  Advisory  Commission  to  the 
Council  of  National  Defense,  but  outside  of  any  such 
organization  individuals  by  the  thousand,  so-called 
"dollar  a  year  men,"  proffered  their  services,  which 
were  accepted  by  the  Government.  In  many  in- 
stances men  of  great  business  prominence,  real  cap- 
tains of  industry,  were  called  into  the  government 
service  and  given  positions  of  commanding  impor- 
tance. It  is  needless  to  say  that  in  spite  of  occasional 
failures  the  results  in  most  cases  were  good,  in  some 
instances  magnificent.  The  influence  of  these  men 
was  not  merely  the  direct  influence  at  the  time.  I  am 
not  at  all  certain  but  that  the  indirect  influence  will  be 
of  even  greater  import  in  the  future.  jNIen  accus- 
tomed to  modern  business  methods  found  themselves 
cramped  and  hampered  by  official  red  tape  and  the 
routine  methods  of  the  permanent  office-liolder.  In 
some  cases  they  had  the  power  to  cut  the  tape  and 
establish  effective  business  methods.  In  many  others 
they  worked  for  months,  fretting  and  fuming  with 
impatience  at  the  small  results  accomplished  as  com- 
pared with  what  they  might  have  achieved  had  there 
been  the  proper  organization.  This  sense  of  the  ineffi- 
ciency of  government  organization  and  of  government 
methods  to  produce  results,  this  intimate  personal, 
sometimes  bitter  knowledge  of  tlie  evils  of  the  civil 
service  laws,  in  connection  with  the  recognition  of 
course  of  the  good  connected  therewith,  made  a  pro- 
found impression  then  and  is  likely  to  be  of  very  great 
influence  in  the  future.     These  men  bv  the  thousands 


284.         BUSINESS  AND  THE  GOVERN]MENT 

will  go  to  the  polls,  and  those  who  become  office- 
holders will  take  up  their  duties,  with  a  strong  deter- 
mination to  get  better  men  at  the  heads  of  our  govern- 
ment departments,  give  them  proper  authority  and 
insist  on  their  getting  business  results.  This  experi- 
ence will  give  added  strength  to  the  feeling  against 
government  ownership  and  government  management 
of  business  wherever  it  can  be  avoided. 

13.  Groncth  of  real  democracy. — In  still  other  lines 
that  may  in  the  long  run  have  an  even  deeper  influ- 
ence upon  American  citizenship  than  do  these  busi- 
ness problems,  the  war  had  a  profound  effect.  Men 
who  served  with  the  colors,  who  fought  side  by  side  at 
risk  of  life,  came  to  know  one  another  as  real  men  and 
not  as  members  of  social  classes.  Sometimes  men 
who  in  civil  life  had  been  employers  found  themselves 
in  the-arni}^  subject  to  the  orders  and  the  discipline 
of  men  who  had  been  their  servants  and  who  because 
of  theh'  real  efficiency  in  times  of  danger  could  win 
their  respect  and  admiration.  Snobbishness  disap- 
pears under  such  conditions.  Real  democracy  is  at- 
tained. Service  is  the  standard  of  conduct  and  of 
respect.  Trickery  and  dishonesty,  if  they  are  such  as 
to  affect  results,  become  intolerable.  Sincerity  and 
loyalty  are  the  tests  of  comradeship  and  manhood. 
These  experiences  carry  over  into  civil  life.  There  is 
some  truth  in  the  arguments  for  war  that  have  been 
brought  up  by  militarists,  some  of  whom  argue  in  line 
with  these  thoughts  that  every  generation  needs  a  war 
in  order  to  maintain  the   hisrhest  moral  standards 


THE  GREAT  WAR  285 

among  the  people.  Such  arguments  seem  mistaken; 
but,  even  tho  we  can  secure  these  quahties  without 
the  dread  cost  of  war,  when  war  does  come  some  of 
these  qualities  develop  and  their  influence  lasts.  And 
these  qualities  are  as  admirable  in  business  in  time 
of  peace  as  in  the  army  under  government  direction 
in  time  of  war. 

14.  Art  and  Literature. — It  was  often  predicted 
during  the  early  days  of  the  war  that  as  one  result  we 
should  have  in  time  a  renaissance  in  art  and  in  litera- 
ture so  marked  that  it  would  affect  materially  future 
generations.  Attention  was  called  to  the  fact  that 
many  of  our  best  statues,  monuments  and  works  of 
architecture  of  today  were  produced  as  the  memorials 
of  the  Civil  War.  Many  of  the  noblest  poems  of  all 
literatures  have  been  connected  with  war.  Some  of 
our  critics  have  thought  that  the  high  water  mark  of 
American  literature  was  reached  in  Lincoln's  Gettys- 
burg address  and  Lowell's  Commemoration  Ode.  It 
is  as  yet  too  soon  to  give  any  positive  estimate  of  the 
results  of  the  World  War  in  tliese  directions,  but  al- 
ready one  may  note  in  plays,  in  pictures,  in  monu- 
ments and  proposals  for  memorials,  and  in  poems  and 
public  addresses,  in  works  on  history  and  government 
and  philosophy  and  business,  some  effects.  Art  and 
poetry  and  imaginative  literature  are  the  outgrowth 
of  emotion  and  of  sentiment.  And  in  no  other  times 
are  these  sentiments  and  emotions  so  deeply  and  nobly 
stirred  in  the  minds  and  hearts  of  so  many  people  as  in 

time  of  war.     Any  great  change  in  these  directions 
xxiy — 20 


286        BUSINESS  AND  THE  GOVERNMENT 

has  also  a  marked  influence  upon  the  types  of  business 
and  their  relative  proportions  in  any  country. 

15.  Gi'owth  of  national  feeling. — Since  the  signing 
of  the  Armistice  as  well  as  before,  it  has  been  easy  to 
note  the  change  in  the  sentiments  of  all  classes  of  the 
population  regarding  our  country  and  its  place  among 
the  nations.  The  war  doubtless  strengthened  im- 
measurably the  feeling  of  nationality  in  this  country, 
the  sentiment  for  unity.  No  other  single  influence 
has  done  so  much  to  abolish  sectionalism.  A  decade 
ago,  to  many  of  the  inhabitants  of  the  Middle  West 
questions  of  shipping,  of  a  merchant  marine,  of  a 
navy,  seemed  remote  and  aroused  little  interest.  To- 
day as  a  result  of  the  new  knowledge  of  the  imperative 
need  of  a  navy  and  of  the  dire  disasters  that  would 
have  overcome  the  country  had  we  not  been  able  to 
supplement  our  own  efforts  to  create  on  short  notice  a 
merchant  marine  by  securing  the  loan  of  ships  from 
Great  Britain,  our  great  Ally,  the  man  from  Kansas  or 
Dakota  has  come  to  feel  that  a  great  merchant  marine 
is  of  vital  interest  to  him.  The  Panama  Canal,  a  naval 
force  on  the  Pacific,  the  submarine  cable  landing  on 
the  island  of  Yap,  the  mental  attitude  of  the  Fili- 
pinos— all  touch  him  as  questions  of  immediate  impor- 
tance that  may  affect  him  because  they  affect  our  one 
unified  nation  of  which  he  is  now  conscious  that  he  is 
a  part. 

We  see  this  sentiment  of  our  nationality  in  its  rela- 
tions to  other  nations  in  the  increased  attention  given 
in  our  newspapers  and  books  to  discussions  on  inter- 


THE  GREAT  WAR  287 

national  trade  and  the  methods  of  its  development. 
International  exchange  was  formerly  a  question  for  a 
few  experts  in  two  or  three  banks  and  for  a  dozen  big 
business  houses.  Today  thousands  are  talking-  of  the 
value  of  the  franc  in  terms  of  dollars,  of  the  influence 
of  a  falling  rate  of  exchange  on  imports,  of  the  balance 
of  trade  and  its  significance.  These  are  influences  of 
the  war  and  they  are  influences  that  will  last. 

As  never  before,  despite  all  the  discussions  over  the 
details  of  a  League  of  Nations,  all  of  us  are  feeling 
that  our  country  is  ours ;  that  it  has  a  place  and  a  lead- 
ing place  among  the  nations — in  finance,  in  business, 
in  trade ;  and  that  it  is  certain  to  have  a  leading  place 
in  settling  for  the  world  along  moral  lines,  with  the 
welfare  of  the  nations  in  mind,  the  great  questions  of 
war  and  peace  and  justice. 

REVIEW 

1.  Describe  the  organs  of  economic  control  which  grew  out  of 
war  necessities. 

2.  Contrast  the  United  States  as  a  debtor  and  a  creditor  nation. 

3.  What  are  the  principal  causes  of  inflated  prices? 

4.  What  gains  were  made  by  labor  during  the  war?  How  far 
have  they  been  maintained  ? 

5.  What  features  of  government  railway  management  are  likely 
to  affect  future  operations  ? 

6.  What  lessons  can  be  learned  from  the  Food  and  Fuel  Ad- 
ministration ? 

Note:  Numerous  questions  of  business  practice  and  procedure  are 
discussed  in  detail  in  the  Modern  Business  Reports.  The  current  list 
will  show  those  which  are  especially  related  to  this  volume.  Among 
them  may  be  mentioned 

7  Income  and  Excess  Profits  Taxes 

69  The    Uses    of    Government    Statistics    in    Business 

79  Preparing  for  the  Consular  Service. 


INDEX 


Accidents, 

Extent  of  losses,  107  ;  Responsibility 
for,  109 

Agriculture, 

Importance  of,  47 ;  Government  ac- 
tivities in,  47 ;  Department  of, 
48 ;  Colleges,  49 ;  Institute  work, 
52  ;  Extension  teaching,  52  ;  County 
agents,  53;  Marketing  problem 
in,   54 

American  LaJid  Policies,   43 

Americanization,   154 

Art  and  Literature,  285 

Bolshevism,    137,    141 

Boycott,    The,    145 

Bounties,   80 

Business, 

Foundation  of  civilization,  2;  And 
taxation,  18 ;  Need  of  standards  in, 
85 ;  Controversy  regarding  govern- 
ment   inspection,    85 

Business  Men, 

>rembers  of  organized  government,  3  ; 
Guided  by  and  guiding  state,  4 ; 
Influence   on   public   opinion,    15 

Certification  of  Professions,  96 
Of  other   public  servants,    98 
Civil  Service  and  the  Post  Office,  228 
Dangers    of    large    lists,    255 ;    could 
dominate  countrj-  thru  vote,  257 
Clayton  Law,  The,  215 
Compensation,  Workmen's,  120 

.Scope    of    laws,    122:    Limited    bene- 
fits of,   122;   Assurance  of  benefits, 
123 ;      Simple     administration     of, 
123;   Results  of  workmen's,    123 
Conservation,   44 

I'lans  for,   4ft 
County  Agents,  53 
Corporations,   Public   Service,   150 
Credits  to   Foreign  Nations,  268 

Department  of  Agriculture,  48 

Development  of  Holding  Companies, 
194 

Distinction  between  Commerco  and 
Manufacturing,   217 

Diversion  to  Lees  Profitable  Indus- 
tries,  73 


Dumping,   81 
Duties, 

Kinds    of,     79 ; 
pound,  80 


Specific,    79 ;    Com- 


289 


Economic  Independence  of  Nations,  82 
Education    and    Diversification,    72 
Ely,  Professor  R.  T.,  199 
Employer's  Liability,   121 
Employment, 

Problems  of,   103 
Examination  and  Certification  of  Cer- 
tain  Professions,   96 
Executive   and  Judiciary,    11 
Expenditures, 

Importance   of    Public,    39;    War,    41 

Farm   Management,    51 
Farm  Loan  Act, 
-  Federal,    55 ;    Associations,    National, 
57 
Federal  Government, 

Increasing   Power   of,   216 
Federal  Incorporation  for  License  for 

Interstate  Commerce,  217 
Federal  Trade  Commission, 

Powers  of,  212;  Power  of  investi- 
gation, 213;  Power  to  require  re- 
ports and  classify  corporations, 
214;  Power  to  prevent  unfair 
competition,  214 
Federal  War  Compensation  Laws,  133 
Finance, 

Public,    38 
Foreign  Trade, 

Proportion  of  total,  76 
Forests,  44 

Gary,   Elbert  H.,  209 

George.   Henry,    :'.4 

Goods  Under  Bond,   78 

Government  Management, 

Tclc;,'raplis  and  tclcpliones,  232 ;  Un- 
progressiveness  of  government 
plant.s,  234;  What  guiding  princi- 
ples should  be  followed,  235  ;  Gov- 
ernment should  act  on  ba,si8  of 
accurate  knowledge,  236;  Not  a 
panacea,  238;  Advantages  at  times 
greater  than  disadvantages,  238; 
Importance   of  public   health,   239; 


£90 


INDEX 


GoTernment  Management — continued 
War  and  the  extension  of,  239 ; 
Extension  of  in  the  United  States, 
240 ;  What  will  after  effects  be, 
241 ;  Extension  of  post  office  work, 
242 ;  Dishonest  financial  methods 
must  stop,  243 ;  Of  railways  in 
Canada,  244;  Of  railroads  in 
France,  246;  Conditions  under 
which  it  may  be  a  success,  247 ; 
Erroneous  statements  as  to  costs, 
249 ;  Fallacies  in  government 
figures.  249 ;  Why  private  man- 
agement is  more  efficient,  252 ; 
Private  business  dynamic,  253 ; 
Seldom  a  source  of  revenue,  253 ; 
Dangers  of  large  civil  service, 
255 ;  Questions  to  be  asked  regard- 
ing it,  257;  Public  must  be  sure  of 
facts,  258;  A  remedy  to  be  spar- 
ingly applied,  259 ;  Public  wel- 
fare  is   fundamental  principle,   260 

Government  Officials 
Influence    of,    6 

Government 

Regulation  by,  1 ;  Committee  or 
agent  of  the  state,  5;  Conditions 
under  which  it  must  act,  7 ;  The 
funds  of,  19 ;  Natural  resources 
and  the  farmer,  43 ;  Federal, 
grants  lands  to  states,  45 ;  En- 
couragement of  industries  and  com- 
merce, 61 

Great  War, 

Its  effects,  its  influences,  its  lessons, 
262 ;  War  cuts  deep  into  economic 
life,  262 ;  War  preparations,  262 ; 
Economic  control  born  of  war  con- 
ditions, 264 ;  United  States  be- 
comes a  creditor  nation,  266 ; 
Further  credits  to  foreign  na- 
tions a  necessity,  268;  Inflated 
prices  and  credits,  269;  Profiteer- 
ing, 272;  Labor,  273;  Industrial 
changes,  276;  Influence  upon  rail- 
ways, 277;  Food  and  fuel,  279; 
Securing  popular  cooperations, 
281;  Growth  of  real  democracy, 
284;  Art  and  literature,  285; 
Growth   of   national   feeling,    286 

Growth  of  Real  Democracy,  284 

Hatch  Act  Experiment   Stations,   50 

Holding  Companies,  Development  of, 
194 

Home  Market,  75 

How  Far  Should  Country  Be  Self- 
sufficient?  71 

Industrial  Commissions,  149 


Infant  Industries,  69 

Immigration,   150 

Inspection, 

Of  meat  as  commercial  and  sanitary 
measures,  91:  For  export  trade, 
92 ;  Of  banks  and  insurance  com- 
panies,   96;    Limitations   of,   100 

Insurance, 

Against  unemployment,  129 ;  Com- 
pulsory against  unemployment, 
129 ;    Soldiers  and  sailors,    134 

Insurance  and  the  Laborer,  118 

Insurance,  social,  119;  General  re- 
sults and  prospects  of,  130 
Insurance,  life,  119 ;  Workmen's 
compensation,  120;  Health,  124; 
Field  and  scope  of  health  insur- 
ance, 124;  Benefits  under  health 
insurance,  125;  Sources  of  funds, 
125  ;  Peculiar  difficulties  of  admin- 
istration, 125  ;  Results  of  health  in- 
surance, 126:  Against  invalidity 
and  old  age,  127;  Compulsory  old 
age,   128 ;   Old  age  pensions.   128 

International  Harvester  Company,  199, 
208 

Judiciary,   11 

Justice  and  Taxation,  33 

"Kartell"    (In   Germany),    200 

Labor,  273 

American     policy.     105 ;     Results     of 
regulation,       106;       Organizations, 
137;      Industrial      changes,      276; 
Whitley  committees.   276 
Labor  Contract,   103 

Constitutional   limitations    of,    104 
Labor  Unions,   137 

Relations  of  to  government,   143 ;   in- 
junctions     in      control      of,      146; 
Financial  liability  of  members,  146 
Laborer  and  Insurance,  113 
Legislatures,    10 
Low  Wages, 
Extent  of,   116 

Mackenzie-King,   W.  Lyon,  203 
Marketing  Problem,  54 
Mercantilists   and    Theory    of   Protec- 
tion, 63 
Minimum  wage,  115 

Laws  on,   in   United  States.   115;   De- 
cisive experience  still  lacking,   116; 
Caution  in  adopting,    117 
Mineral  Lands,  43 
Modern  Industry, 

New    needs    of,    106;    Conditions    in, 
107 ;   Responsibility  for  conditions. 


INDEX 


291 


Modem  Industry — continued 

109 ;  Part  of  the  Government, 
109 ;  Extent  of  requirements  in, 
111;  Regulation  of,  111;  Women 
and  children  in,  112;  New  risks 
in,  117;  Public  inspections,  147; 
Results  of  public  inspection,   149 

Municipal    Accounting,    Poor    Systems 
of,   190 

Municipal  Government  Still  Inefficient, 
194 

Municipal  Ownership, 

In  United  States,  176;  In  Europe, 
178 ;  Issue  must  be  settled  by  ex- 
perience, 196 ;  Why  undertaken, 
179;  Moral  aspect  of,  180;  New 
point  of  view  on,  180;  Favorable 
interest  rates  secured  for,  181 ;  No 
dividends  on  watered  stock,  181; 
Expense   of   regulation,    182 

Municipal  Ownership  and  Labor  Con- 
ditions, 182 
Betterment  claimed.  183 ;  Different 
conditions  in  Europe  and  Amer- 
ica, 184 ;  Favoring  workmen  by  re- 
duced rates,  189 

Natural  Besources, 
Conservation   of,   44 

Old   Age   Pensions,    128 

Parcel  Post, 

Reasons  for,  230;  Introduces  a  new 
])rinciple,    230 

Picketing,  145 

Postal  Service,  The,  220 

Importance  of.  220;  Development  of, 
221;  Activities  constantly  expand- 
ing, 223  ;  Reasons  for  Governmen- 
tal Management.  223 ;  As  possible 
field  of  Governmental  Revenue, 
224;  Social  aspects  prominent  in, 
225;  Should  be  run  eflficiently  and 
economically,  225:  Financially  a 
failure,  226;  Proper  accounting 
methods  lacking,  227:  Other  fac- 
tors causing  inefficiency.  228 ; 
Parcel  Post,  230;  Post  office 
costs  undetermined,  231;  Tele- 
graphs and  telephones,  management 
by  post  office.  232 ;  .Si)pciul  war 
services  of.  236;  Extension  of 
oj)erations.   242 

Prices  and  Credits, 
Inflation   of.   269 

Private     Management    Preferable    for 
Profit,   lit4 

Profiteering,  27'j 
Public  Inspection  of  Business,   8.t 


Public  Opinion,  ' 

Nature    of,    12 ;    Influences    of   busi- 
ness  questions,    14 
Public  Parks,  45 

Public   Service  Corporations,    156 
Need    special    recognition,    156;    Why 
different      from      other      industries, 

157  ;  Meaning  of  natural  monopoly, 

158  ;  Tend  toward  monopoly,  159  ; 
Characteristics  of,  161;  Substitu- 
tion for  services  of  impossible, 
161 ;  Competition  impossible,  162  ; 
Competition  between  railroads, 
159;  Assisted  by  the  Government, 
162;  Bad  practices  in  the  post, 
163 ;  Public  character  of,  not  rec- 
ognized, 163;  Systematic  regulation 
of,  164;  Powers  of  regulating 
commissions,  165;  Commissioners, 
how  chosen,  165 ;  Commissioners, 
qualifications  of,  166;  Status  of 
regulating  bodies,  166;  State 
versus  local  regulation,  166;  Ad- 
vantages of  state  regulation,  167; 
Optional  home  rule,  168;  Achieve- 
ments of  regulating  bodies.  169 ; 
Powers  of  commissions,  169;  Net 
income  and  distribution.  170;  Val- 
uation of  properties,  171;  Points 
in  dispute,  172;  Regulation  of 
security  issues.  173 ;  Regulation 
of  utilities  still  in  developmental 
stage.    173 

Public  Utilities, 

Local,   175:   Water  works,   176;   Elec- 
tric  light  plants.    176 ;    Gas  works, 
177;    Street  railways,   178 
Pure  Food  Laws,  93 

Quality, 

Determination   of   salt,   lumber,    grain 
and  sugar,  88 
Quasi-official  Privileges,   98 

Reclamation   Service,   44 
Regulation  or  Ownership    (Municipal), 
175 
In     France,     185;     Modern     develop- 
ment, effects,  advantages  of,   192 
Restraint  of  Trade,  reasonable  and  un- 

reason.-ible.    205 
Rural  Conditions, 
Improvement  in,  59 

Sherman  Anti-Trust  Act,  205;  Defi- 
nition of  Monopoly  in,  205;  At- 
tciniits   to   rinrify.    212 

Should  Public  Management  Be  Ex- 
tended,  23  8 

Smith-Lever  Bill,  52 


292 


INDEX 


Social  and  Ethical  Questions,   16 
Socialism,   140 
Standard  Oil  Company, 

Decision  of   Supreme  Court,   206 
Syndicalism  (I.  W.  W.),  139 

Tax, 

General  property,  27 ;  Modified 
forms  of  general  property  tax,  27; 
Federal  income,  28;  Other  income, 
29 ;  Corporation,  30 ;  Excess 
profits.  31;  In  other  countries,  32; 
Inheritance,    32;    Single,    34; 

Internal  Revenue,  36 
Taxation, 

And  Justice,  33;   Indirect,  36;   State, 
38;  Ideal  system  of,  37 
Taxation  and  Business,   19 

Share     in     distribution,     20;     Nature 
of,    22 ;    Canons    of,    23 ;    Incidence 
of.   Who  pays,   24;   Forms  of,   26; 
Modified   Forms,   27 
Tariff,  and  Politics,  61 

Systems,  62 ;  Alexander  Hamilton's 
View  on,  64 ;  Conflicting  interests 
in,  65 ;  Classification  of  products, 
67;  Infant  industries  and,  69; 
Who  bears  burden  of,  70 ;  Effects 
on  wages,  73 ;  Protective  duties, 
76 ;  Home  market,  75 ;  small  in- 
fluence   on    industry,    77 

Chief  objection  to,  77 ;  Machinery 
in,  78;  Goods  under  bond,  78; 
History  of,  81;  Effect  of  war  on, 
81 


Tariff  Commission,    83 
Trusts  and  Combinations,   197 

No  clear-cut  government  policy  rec- 
ognized, 197;  Definition,  198;  Why 
government  interferes,  198 ;  Policy 
followed  in  Germany,  200 ;  Policy 
followed  in  England,  201 ;  Ca- 
nadian policy,  201 ;  Regulation 
under  the  Canadian  Act,  202 ; 
Consideration  in  Canadian  Policy, 
203 ;  Beginnings  of  American 
anti-trust  movement,  203 ;  The 
real  question  involved,  210;  Ad- 
vantages and  disadvantages  of 
new  laws  regarding,  215;  Present 
situation,  218 


U.   S.,  A  Creditor  Nation,  266 
U.    S.   Steel  Corporation,    199 ;   207 
Sound  business  principles  recognized, 
209 
U.    S.    Supreme   Court,    afprmative   de- 
cision   recognizes    honest    business 
methods,   210 


War  and  Economic  Life,  262 

War  Expenditures,  loans  and  taxations, 

41 
Weights  and  Measures,  86 
Women  and  Children  in  Industry,  112 
Present   regulations   beneficial,    117 


THE-PLIUPTONPEESS 
NORWOOD-MASS-.U-S-A 


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UC  SOUTHERN  REGIONAL  LIBRARY  FACILITY 

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AA    000  988  944    5 


UNIVERSITY  OF  CALIFORNIA 
LIBRARY 

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